Annual Report | 2007 - the Jersey Financial Services Commission

Transcription

Annual Report | 2007
Contents
THE ISLAND OF JERSEY
02
THE JERSEY FINANCIAL SERVICES COMMISSION
04
THE COMMISSIONERS
05
CHAIRMAN’S STATEMENT
07
DIRECTOR GENERAL’S STATEMENT
15
STRUCTURE CHART
22-23
SUPERVISORY APPROACH
25
INTERNATIONAL STANDARDS AND POLICY DEVELOPMENT
33
ENFORCEMENT
35
REGISTRY
39
THE SUPPORT DIVISIONS
43
STATISTICAL ANNEX
44
FINANCIAL STATEMENTS
51
CORPORATE GOVERNANCE
63
ANNUAL REPORT 2007
Page 01
‘Jersey enjoys a reputation
as a well-regulated
international finance
centre’
Page 02
ANNUAL REPORT 2007
the island of jersey
Jersey is situated off the north-west coast of France, 14 miles from
Normandy and 85 miles from the south coast of England.
Within its 45 square miles the Island has a population of over 89,000
and enjoys a reputation as a well-regulated international finance centre.
Jersey’s allegiance is to the British Crown but it is not part of the United
Kingdom. The Island is not part of the European Union, being neither a
separate Member State nor an Associate Member.
Jersey has its own legislative assembly, called the States of Jersey, which
comprises 53 elected members plus the President. Jersey has its own
system of local administration, fiscal and legal systems, and courts of law.
Jersey has a ministerial system of government comprising a Council of
Ministers led by a Chief Minister. Each Minister oversees the work of a
Government Department. Further information on the workings of government
in Jersey can be found on the States of Jersey website, www.gov.je
ANNUAL REPORT 2007
Page 03
The Jersey Financial Services Commission
The Jersey Financial Services Commission (the “Commission”) is responsible for the
regulation, supervision and, within its legal remit, the development of the financial
services industry in the Island.
The Commission is a statutory body corporate, set up under the Financial Services
Commission (Jersey) Law 1998 (the “Commission Law”). The Commission Law
provides for a Board of Commissioners to be the governing body of the Commission.
The Commission Law established the Commission as an independent body,
fully responsible for its own regulatory decisions. The Commission is accountable for
its overall performance to the States of Jersey through the Minister for
Economic Development.
The Commission is also responsible, pursuant to powers granted to it under the
Companies (Jersey) Law 1991, for appointing a person to exercise certain statutory
responsibilities as the Registrar of Companies. The Commission has appointed the
Director General of the Commission as the Registrar.
The Commission’s key purpose is:
To maintain Jersey’s position as an international
finance centre with high regulatory standards by:
• reducing risk to the public of financial loss
due to dishonesty, incompetence, malpractice
or the financial unsoundness of financial
service providers;
• protecting and enhancing the Island’s reputation
and integrity in commercial and financial matters;
• safeguarding the Island’s best economic
interests; and
• countering financial crime both in Jersey
and elsewhere.
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ANNUAL REPORT 2007
In support of its key purpose, the Commission aims to:
• ensure that all entities that are authorised meet fit
and proper criteria;
• ensure that all regulated entities are operating within
accepted standards of good regulatory practice;
• match international standards in respect of banking,
securities, trust company business, insurance
regulation, anti-money laundering, and terrorist
financing defences;
• identify and deter abuses and breaches of regulatory
standards; and
• ensure that the Commission operates effectively
and efficiently, and is accountable to the Minister
for Economic Development as prescribed in the
Commission Law.
The Commissioners
Non-Executive Commissioners
Colin Powell, CBE - Chairman
Colin Powell became Chairman of the
Jersey Financial Services Commission
in October 1999.
He has been Chairman of the Offshore Group
of Banking Supervisors (“OGBS”) since
1981 and represents the OGBS at meetings
of the Financial Action Task Force.
He is currently co-chair of the Basel
Committee Cross-Border Banking Working
Group and an advisor on international
affairs to the States of Jersey’s Policy and
Resources Committee.
Before taking up his present position, he had
posts as Economic Adviser and Chief Adviser
to the States of Jersey between 1969 and
1999 and was responsible for advising on
Jersey’s economic development strategy,
including its development as an international
finance centre.
Richard Pirouet - Deputy Chairman
(until May 2007)
Jacqueline Richomme - Deputy Chairman
(from June 2007)
Richard Pirouet was born in Jersey and
was educated at Victoria College. He was
a Commissioner from the inception of the
Jersey Financial Services Commission in
July 1998 and was Deputy Chairman until
his retirement.
Jacqueline Richomme was first appointed
as a Commissioner on 1 October 2001 and
became Deputy Chairman in June 2007.
He qualified as a chartered accountant in
1969 and was appointed a partner of one
of the predecessor firms of Ernst & Young in
1974. He became Managing Partner of Ernst
& Young in 1991 and Senior Partner from
1994 until his retirement from the firm
on 31 March 1998.
Richard retired from the Board of
Commissioners in May 2007, having served
three terms, and was replaced as Deputy
Chairman by Jacqueline Richomme.
She studied law at the University of Durham
and then at the College of Law, Chester and
qualified as an English Solicitor in 1982. She
joined the Jersey law firm, Mourant du Feu &
Jeune, in 1985 and subsequently qualified
as a solicitor of the Royal Court of Jersey in
1988, becoming a partner of Mourant du
Feu & Jeune shortly thereafter.
Her legal practice has covered all aspects of
Jersey company, trust and limited partnership
law, and she specialises in the provision of
Jersey legal advice to investment funds and
international finance transactions.
John Averty
John Boothman
Michael Clapham
John Averty joined the Board of
Commissioners in December 2005.
John Boothman joined the Board of
Commissioners in June 2006.
He was born in Jersey and educated at
Victoria College.
After graduating from Oxford University,
John took up a position with Morgan
Grenfell (Jersey) Limited in 1974. In 1993,
he became managing director of Deutsche
Morgan Grenfell (CI) Limited and subsequently
of Deutsche Bank International Limited.
Michael Clapham was educated at Victoria
College, Jersey and Wadham College Oxford.
He has an M.A. in English.
John is the Chairman and Chief Executive of
the Guiton Group Ltd. The group publishes
daily and weekly newspapers in the Channel
Islands. It also has divisions with technology,
and retail/wholesale interests.
From 1969 to 1984 John served as a
Member of the States of Jersey, initially as a
Deputy and latterly on the Senatorial benches.
He is currently a non-executive director of a
Jersey registered private bank.
John retired from the bank in 2002
and is now the non-executive chairman
of a private equity fund administration
company; he also holds various other
non-executive directorships.
He qualified as an Advocate of the Royal
Court of Jersey in 1966.
He was Senior Partner of a long-established
Jersey law firm for many years, which
merged with another firm in 1995 to become
the legal, fiduciary and corporate services
group of Ogier & Le Masurier. He retired from
the partnership in 2001 but remains with
the firm as a consultant.
Michael was President of the Law Society
of Jersey from 1997 to 2001 and was
first appointed as a Commissioner on
1 December 2002.
ANNUAL REPORT 2007
Page 05
The Commissioners
Non-Executive Commissioners
Scott Dobbie, CBE
Clive Jones
Frederik Musch
Scott Dobbie has over thirty years’ experience
in stockbroking and investment banking and
remains a senior advisor to Deutsche Bank.
He was appointed as a Commissioner on
1 December 1999.
Clive Jones joined the Board of Commissioners
on 23 October 2007. Clive is currently a
company director, having retired in June
2007 from a career in international banking
spanning 36 years.
He was a Director of the United Kingdom’s
Securities and Futures Authority from
1993 to 2001, and served as a member
of the Regulatory Decisions Committee of
the UK Financial Services Authority from
2001 to 2005.
Prior to his retirement from banking,
Clive had been the Citigroup Country Officer
for the Channel Islands, which involved being
Chairman and Managing Director of Citibank
(Channel Islands) Limited, as well as holding
Directorships for all Citibank Companies within
the Island.
From 1986 to 1992, Frederik Musch held
the position in the Dutch Central Bank
of Deputy Executive Director in charge of
banking supervision, and represented the
Central Bank on the European Union’s
Banking Advisory Committee and the Basel
Committee on Banking Supervision. He was
a founding member of the Securities Board of
the Netherlands.
He is also Chairman of the Securities
& Investment Institute, The Edinburgh
Investment Trust plc and Standard
Life European Private Equity Trust plc
and a Director of Premier Oil plc and
other companies.
He has previously held the posts of President
of the Jersey Bankers Association, Chairman
of the Jersey Finance Industry Association,
and was one of the founding Board members
of Jersey Finance Limited.
Clive is currently the Vice Chairman of
Governors for Highlands College.
Executive Commissioner
Sir Nigel Wicks
John Harris - Director General
Sir Nigel Wicks is currently the Chairman
of Euroclear, having previously been the
non-executive Deputy Chairman. He was
a member of the British Civil Service for
32 years. He held the position of Second
Permanent Secretary and Director of
International Finance at HM Treasury from
1989 to 2000. He has held senior positions
in the offices of British Prime Ministers,
Harold Wilson, James Callaghan and
Margaret Thatcher. He was a member of the
EU Committee of ‘Wise Men’ on European
Securities Regulation (The Lamfalussy
Group). He served as Chair of the Committee
on Standards in Public Life between 2001
and 2004.
John was appointed Director General of
the Commission on 6 November 2006
and subsequently joined the Board of
Commissioners on 1 March 2007. He is a
fellow of the Chartered Institute of Bankers.
He joined the Board of Commissioners
in July 2007.
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ANNUAL REPORT 2007
He previously held the position of Director International Finance in the States of Jersey
Chief Minister’s Department where he
had responsibility for all aspects of the
Government’s policy on the maintenance
and enhancement of Jersey’s position as
an international finance centre.
John spent 22 years working internationally
for the Natwest Bank Group and from 1998
to 2002 he was Chief Executive Officer for
NatWest Offshore with responsibility for offices
in Jersey, Guernsey, Isle of Man, Gibraltar,
Cayman, Bermuda and the Bahamas.
From 1992 to 1998 he was Secretary
General to the Basel Committee. In 1998 he
became a founding Director with the Financial
Stability Institute at the Bank for International
Settlements in Basel, from which position he
retired in 2001.
He is currently Chairman of the Global
Financial Services Regulatory Practice at
PricewaterhouseCoopers and was appointed
as a Commissioner on 18 July 2001.
‘Jersey’s long-term future as an international
finance centre depends on its international
reputation, and this is heavily reliant on
compliance with international standards
and being recognised as such.’
ANNUAL REPORT 2007
Page 07
For the Jersey Financial Services Commission
(the “Commission”) and other regulatory authorities
2007 was a year when the saying “no man is
an island” was never truer. Globalisation and the
interlinking of economies and financial markets,
and the consequential increase in international capital
flows, has meant that disturbances in one market
such as United States (“US”) sub-prime mortgages are
quickly transmitted to, and impact on, other markets
around the world.
• for that information to be accessible in a timely
manner for those who need it for the effective
operation and regulation of the financial market
place; and
In response to competitive pressures, those in the
market place are also continually introducing new
and often increasingly complex financial products,
about which there is often an insufficient understanding
by investors due to a lack of transparency. This lack of
transparency has made it more difficult for regulators
and market participants to engage in crisis prevention,
and more likely that they will be faced with the need to
engage in after-the-event crisis management.
International Standards and Initiatives
This increasingly complex global market place is
placing greater pressures on the resources of financial
institutions and the regulatory community. One result
of this has been the growing recognition of the need
for a risk-based approach to financial regulation.
However, while placing business and institutions into
risk categories is an attractive concept, it is not an easy
course to adopt, as recent events arguably demonstrate.
To be effective this approach requires accurate,
adequate, timely and accessible information.
The importance of information and transparency
has been given further impetus by the turmoil in the
financial markets in the second half of 2007. A plethora
of opaque institutions and vehicles have sprung
up - what has been called the “shadow” banking
system - and they have come to play an important
role in providing credit across the financial system.
Until recently, structured investment vehicles and
collateralised debt obligations attracted little attention
outside specialist financial circles. Though often
affiliated to major banks they were not always fully
recognised on balance sheets.
In responding to the credit crisis in the second half of
2007, the European Union (“EU”) called for enhanced
transparency for investors, markets and regulators.
The desirable characteristics of transparency have
been listed as access, timeliness, relevance and quality.
To achieve this effective transparency it is necessary • for up-to-date quality information to be obtained and
held by those practising in the market place;
Page 08 ANNUAL REPORT 2007
• for the information to be able to be shared between
all relevant parties.
The Commission remains committed to playing a full
and active part in this process.
One particularly interesting aspect of the market turmoil
in 2007 was the fact that, whereas in the past it
had often been argued by the G7 countries that the
Offshore Financial Centres (“OFCs”) presented a threat
to the stability of financial markets, with the risk of the
failing of a banking subsidiary in an OFC weakening
or pulling down their parent bank, in many cases the
roles have now been reversed. The subsidiaries in
Jersey and other OFCs generally have remained strong,
being largely engaged in deposit gathering and
up-streaming funds to their parents, while it has
been the failings of the parent banks through their
market exposure that has put the stability of financial
markets generally under threat. This has presented
difficulties for regulators like the Commission
responsible for supervising subsidiaries.
Centres such as Jersey for this and other reasons
therefore have an equal if not greater need to see
a global commitment to international standards.
The Commission believes there is much to be gained
from dropping the OFC/non-OFC distinction and
focussing on financial centres according to the level
and scope of their financial activity and their
compliance/non-compliance with international
standards. The international standard setters appear
to be already aware of this point and it is considered
that it will be further promoted if Jersey and other
OFCs no longer form part of a separate International
Monetary Fund (“IMF”)/OFC assessment programme
but are embraced by the Financial Sector Assessment
Programme undertaken by the IMF in respect of
member countries generally.
There are differences in the standards met between
OFCs in the same way that there are differences in the
standards met between non-OFCs. These differences
should be recognised and responded to. Otherwise
there is a real danger that those who have taken great
steps to comply with international standards, as Jersey
has done, will find that they have obtained no real
benefit from this because they remain included on a
general list of OFCs all of which are treated the same by
the G7 countries.
There are some areas where Jersey and other OFCs
are clearly working to higher standards than many
non-OFCs. A good example of this is in respect
of information on beneficial ownership, and the
supervision of trust and company service providers
(“TCSPs”). Some G7 countries have expressed the view
that Jersey and other OFCs have only been persuaded
to comply with international standards because they
have been subject to special attention. The question
has to be asked of those countries why it is that some
OFCs have adopted higher standards than many
non-OFCs. The answer lies in the importance that
centres such as Jersey attach to a good international
reputation, the consequence of which should be fewer
barriers being erected by other countries to market
access, and greater business interest on the part of
those financial institutions that are equally concerned
for their own reputation.
Jersey’s long-term future as an international finance
centre depends on its international reputation, and
this is heavily reliant on compliance with international
standards and being recognised as such. Two of the
Commission’s key aims are protecting the Island’s
reputation and safeguarding the Island’s best economic
interests. In the view of the Commission these are
inextricably linked.
The Commission finds that there is a continued lack
of understanding as to why centres such as Jersey are
successful, with some G7 countries still inclined to take
the view that success must be due to lower standards
of financial regulation and Anti-Money Laundering
and the Countering of the Financing of Terrorism
(“AML/CFT”). The message that the G7 countries
need to receive and understand is that centres such
as Jersey are successful because they are good niche
market operators, both in the way certain products are
marketed and in the quality of service provided, and not
because of regulatory arbitrage. There are many quality
services that well regulated centres such as Jersey are
as well if not better able to supply. Also, international
clients wishing to spread their risks may find it helpful
to spread their assets between different jurisdictions and
in particular into jurisdictions that have a good record of
financial regulation and stability such as Jersey.
Centres such as Jersey are also better able than the
larger centres to accommodate innovative financial
products such as new investment vehicles, and can
respond more flexibly and quickly to the changing
needs of international customers and markets.
The Commission sees no conflict between this
innovation and flexibility and compliance with
international standards. However, the Commission
recognises the importance of a proper degree of
transparency to ensure that what is being done in
Jersey is sufficiently well understood by investors and
by other regulatory authorities.
The Commission attaches particular importance to
assessments of its compliance with the international
standards set by the Financial Action Task Force
(“FATF”), the International Organisation of Securities
Commissions (“IOSCO”), the International Association of
Insurance Supervisors (“IAIS”) and the Basel Committee
on Banking Supervision (“BCBS”). The Commission
has long been a firm supporter of compliance with
international standards and of the process of assessing
the degree of compliance undertaken by an independent
and internationally recognised third party such as the
IMF. This assessment process in 2003 gave Jersey a
virtually clean bill of health. Since then there have been
significant changes in the international standards to be
met, most particularly in respect of those set by the FATF
and the BCBS, and more emphasis on the effectiveness
with which those standards are being met.
The next assessment is to be undertaken in October
2008. The enactment of legislation at the end of
2007 and at the beginning of 2008, and the planning
undertaken for the IMF visit generally, is expected to
put Jersey in a good position to achieve standards of
compliance that compare favourably with those of other
countries, including many EU Member States and G7
countries. It is to be noted that many of the countries
that have been assessed so far against the FATF
Recommendations on AML/CFT have had a striking
number of non-compliant (“NC”) or only partially
compliant (“PC”) ratings. Particularly worthy of note
is that of the 10 EU Member States, whose assessment
reports have been published at the time of writing
this report, all but one had an NC/PC rating for the
Key Recommendation (Recommendation 5) on
Customer Due Diligence.
This situation gives rise to a question from some in the
finance industry, concerned at the loss of business to
competitors both threatened and real, as to whether
Jersey is being over zealous in complying with the
international standards. However, the Commission is
of the view that the long-term success of Jersey as an
international finance centre depends on Jersey being
recognised internationally as a compliant and cooperative
jurisdiction. This is particularly so for the Island’s
relationship with the EU Member States where it is
important, for a number of reasons, that the standards
applied can be seen to be equivalent to those in the EU.
There may be some ‘cost’ in the short term from the
pursuit of this course but this should be more than offset
by the long-term gains. However, what is also important
is that there is international recognition of the need for
action to be taken against jurisdictions that promote
themselves as being more lightly regulated and less
transparent, to ensure that those jurisdictions such as
Jersey that are implementing the international standards
are not disadvantaged and thereby discouraged from
maintaining that position.
ANNUAL REPORT 2007
Page 09
The Commission focuses on financial regulation and
AML/CFT, in accordance with its statutory obligations.
However, what is clear is that many G7/EU jurisdictions
will not afford Jersey general acceptance as a
compliant/cooperative jurisdiction so long as the Island
is not seen to be participating actively and positively
in the field of tax information exchange. This is a
good example of where, although the Commission
is independent and free of political interference in its
regulatory policies, the Commission and Government
can serve a common objective in seeking to safeguard
the Island’s future as an international finance centre.
Through 2007 the Commission, in addition to actively
planning for the IMF visit, has been called upon to take
more immediate action in dealing with several matters
arising from the proximity of Jersey to the EU while
being outside the EU single market. The Commission
has sought to satisfy the EU Member States that Jersey
has equivalent legislation both generally in respect of
AML/CFT and more specifically in respect of the FATF
Special Recommendation VII on Wire Transfers and the
associated EU Regulation.
In the application of international standards the
Commission also has had regard for the development
on a global basis of the risk-based approach to financial
regulation and AML/CFT. In June 2007 the FATF
published guidance on the risk based approach to
combating money laundering and terrorist financing
(high level principles and procedures) as applied to
financial institutions, and the FATF is now taking steps
to extend this risk based approach to designated
non-financial business and professions such as
TCSPs, lawyers and accountants. The Commission
has contributed, and is continuing to contribute to
this work through the Chairman’s role as Chairman of
the Offshore Group of Banking Supervisors (“OGBS”)
which body has observer status at FATF meetings.
The Commission has been at the leading edge in the
regulation of TCSPs, and supports the work of the
OGBS, of which it is a member, in seeking to promote
as an international standard a Statement of Best
Practice for TCSPs. To date this has not received the
attention that it deserves internationally, largely because
the international standard setters traditionally have
been a collection of regulatory authorities and TCSPs
generally are not regulated in non-OFC jurisdictions.
Because TCSPs and other non-financial businesses and
professions active in financial markets have not been
regulated there has been less focus on the issues in this
area. The result has been a “black hole” reflected in the
results of the AML/CFT assessments undertaken by the
FATF and the IMF where many countries have shown
that they lack information on beneficial ownership,
or do not have access to that information.
Page 10
ANNUAL REPORT 2007
For many aspects of the international standards set,
beneficial ownership information is of key importance,
but there remains a reluctance on the part of many
jurisdictions to grasp the nettle of what needs to be
done to ensure that adequate, accurate and current
information on beneficial ownership is obtained and is
accessible in a timely fashion.
The events of the past year have also emphasised
further the importance of international cooperation.
The Commission is playing its part in this and together
with the Attorney General has undertaken visits to the
US and Italy to enhance relationships with regulatory
and law enforcement authorities. The Commission
continues to extend the number of memoranda of
understanding (“MOU”) entered into with other
supervisory authorities. In 2007, MOUs were signed
with the Cyprus Securities and Exchange Commission,
the Office of the Superintendent of Financial Institutions
Canada, the Irish Financial Services Regulatory
Authority, the Central Bank of Cyprus, and the
British Virgin Islands Financial Services Commission.
The Commission recognises the importance of not
only entering into these arrangements but also of
maintaining good ongoing communications with the
countries concerned. Such cooperation is extremely
well received by the overseas regulatory authorities and
helps to improve the overall attitude toward the Island
as an international finance centre.
The Commission has also participated in international
fora both directly and through membership of the
Offshore Group of Banking Supervisors and the
Offshore Group of Insurance Supervisors. Thereby the
Commission has been an active participant in the
work of the FATF, IOSCO, the IAIS and the BCBS.
Through the Registry, the Commission is also playing
a leading role in the European Commerce Registries
Forum, the European Business Register and other
related international initiatives.
An aspect of the experience of the past year that
has a significance worldwide is the apparent lack of
understanding by many in the market place of the
relative riskiness of different investments. A number
of countries have seen the need to enhance financial
education, particularly amongst those at school who
will be tomorrow’s market participants. The European
Commission for example will be publishing an online
reference database of financial education programmes
and research and will enhance an online education
tool to help teachers to incorporate financial matters
into the school curriculum. In Jersey, it is hoped that
the Minister of Education, Sport and Culture will also
be prepared to take steps to ensure that all those
attending the Island’s secondary schools receive some
financial education, adopting the principle ‘taught
young, well prepared’.
‘In the application of international
standards the Commission also has had
regard for the development on a global
basis of the risk-based approach to
financial regulation and AML/CFT.’
ANNUAL REPORT 2007
Page 11
‘The response to international standards
and developments calls for an effective
partnership between the Commission,
the finance industry and Government.’
Page 12
ANNUAL REPORT 2007
Partnership with Government
and Industry
The response to international standards and
developments calls for an effective partnership between
the Commission, the finance industry (the “Industry”)
and Government. The Commissioners met the
Board of Jersey Finance Limited on two occasions
in 2007, and also met with the Minister for
Economic Development and other relevant Ministers.
The Commission also meets with the regulatory
authorities in Guernsey and the Isle of Man with
whom they have much in common.
The Commission sees a need to improve
communications with Industry and Government
and is considering how best to achieve this.
Areas being explored include engaging in an
“educational” campaign explaining what opportunities
exist for individuals and representative bodies to
approach the Commission at Executive and Chairman/
Board level; enhancing the present consultative process
so that the Commission gets closer to individual
respondents; being more proactive in meeting with
individual financial institutions/professional firms;
and through the formation of additional user groups.
There are a number of matters where a partnership
between the Commission and Government is
proving to be of particular importance. The FATF
Recommendations on AML/CFT call for action to
be taken in the areas of non-profit organisations,
estate agents, purveyors of high value goods,
and presently unregulated non-financial businesses
and professions including lawyers and accountants.
Many of these areas are outside the remit of the
Commission as it was conceived by the States when
the Financial Services Commission (Jersey) Law
1998 was enacted. At the same time the Commission
understands that Government is reluctant to establish
new organisations to oversee AML/CFT compliance,
and accepts that the Commission has established
experience and expertise that can be made available.
Government has sought the assistance of the
Commission, which the Commission has been happy
to provide, but leaving with Government the decisions
on the scope and resourcing of what is required.
There are other matters where a partnership between
the Commission and Government may well be called
for in the future. These include possible compensation
schemes, the possible introduction of an ombudsman,
and the possible requirement for regulation of pension
schemes and consumer credit.
The Commission also recognises the importance
of its relationship with Industry in balancing the
needs of those in the market place with continued
compliance with international standards. The Industry
is in competition with other finance centres such as
Luxembourg and Dublin for funds, Hong Kong,
China, Singapore and Switzerland for private client
business, and a number of centres such as Delaware
for company incorporations. In the area of funds,
for example, the Commission has sought to be flexible
in its regulatory approach for example, through the
expert funds and unregulated funds products while
preserving standards through the regulation of fund
functionaries. The Commission recognises that, in the
less benign economic climate in prospect, businesses
will be more sensitive to competitive pressures.
This can be expected to be reflected in calls for a
lighter regulatory touch, but at the same time will
present the regulator with a greater need to monitor
risk management and stress testing practices.
Resourcing the Commission
In the development of regulatory policy, and in
establishing an international reputation for complying
with international standards, the Commission has
always considered it important that the Board of
Commissioners should include both local and non-local
persons. At the beginning of 2007 the Commission
sadly lost the excellent experience and expertise of
one of its non-local Commissioners, Andrew Winckler,
through his untimely death. The Commission however
has been extremely fortunate to have obtained in his
place the services of Sir Nigel Wicks. Among the local
Commissioners the Commission lost the highly valued
services of Richard Pirouet, who was Deputy Chairman,
because the Commission complies with the Jersey
Appointments Commission’s Code of Good Practice
which limits Commissioners to three terms of three
years. His place as a Commissioner was taken by Clive
Jones, recently retired from his position as Managing
Director of Citibank (Channel Islands) Limited in Jersey.
As Chairman I value greatly the tremendous
support I receive from an extremely strong team of
very capable Commissioners with both local and
non-local experience. It is also a team that satisfies
the requirement of the Financial Services Commission
(Jersey) Law 1998 that the Commission should be
made up of a balance of Commissioners covering
providers of financial services, users of financial services
and the public interest.
ANNUAL REPORT 2007
Page 13
The Board of Commissioners is supported by a
first-class Executive team ably led by the Director
General, John Harris. In his first year with the
Commission he has more than amply met the
expectations the Board had of him at the time of his
appointment. He has strengthened the management
of the Commission and, with his team of Directors
and supporting staff, the Commission has grown from
strength to strength. The adequate resourcing of the
Commission, to which subsequent sections of this
Annual Report will refer, is a key to effective compliance
with international standards of financial regulation and
AML/CFT, to ensuring that regulatory skills keep pace
with financial innovation and to achieving a successful
report from the IMF when they visit in October 2008.
Some G7 countries which make up the Financial
Stability Forum question whether centres such as Jersey
have sufficient resources to cope with the business
levels that they enjoy and to comply with international
standards. The Commission is determined to continue
to show that they do.
In May 2007 the Commission moved to new offices
in Castle Street. This move was completed seamlessly
and without any disruption of service. The Executive,
and the ICT team in particular, did a fantastic job.
The Year Ahead
The Commission will continue to carry out its remit,
through authorisation, supervision and enforcement,
of protecting investors, protecting the reputation of
the Island and the Island’s economic interests,
and fighting financial crime. This will continue to
involve the Commission in an extensive programme
of on-site examinations, and strengthening
relationships with regulatory and enforcement
authorities in other countries. At the same time
the Commission, in partnership with Industry and
Government, will seek to act in a way that both
meets international standards and accommodates the
scale and range of business activities, new and old,
upon which the future of Jersey as an international
finance centre depends.
Page 14
ANNUAL REPORT 2007
All this has to be achieved in what can be expected to
be a continuing challenging climate in global financial
markets. The Commission will need to remain vigilant
in assessing the impact of these market conditions on
Industry in Jersey. At the end of 2007 the effects of the
credit crisis had been felt by some individual banks,
special investment vehicles and collective investment
funds, but there was little or no evidence that it was
systemic. However, it was too early for a clear picture
to have emerged. Traditionally there has been a lag in
the impact of international crises on Jersey and it is to
be expected that more special investment vehicles and
funds will be affected adversely in due course.
The Commission will continue to strive to meet these
challenges, as it did through 2007, and I and the Board
together with the Executive are determined to meet our
statutory remit and responsibilities in an effective and
efficient manner.
‘I expected 2007 to be in all probability the
busiest and potentially most challenging in
the Commission’s history.’
ANNUAL REPORT 2007
Page 15
At the time of the last Annual Report I wrote that I
expected 2007 to be in all probability the busiest and
potentially most challenging in the Commission’s
history. This took into account four overlapping
objectives which needed to be met for the Commission
to remain positioned to carry out its core remit and
remain a key part of the Island’s financial services
infrastructure. These were the priority focus on
preparations for the projected 2008 International
Monetary Fund (“IMF”) visit, including the selfassessment exercise to determine necessary changes in
advance of that visit; the upgrade of the Commission’s
various supervisory processes in parallel with a more
ambitious and demanding examination programme to
consolidate supervisory effectiveness; various initiatives
in the funds field both to streamline the Commission’s
supervisory approach and to respond to competitive
pressures from other centres; and finally the physical
relocation of the Commission from its offices in David
Place to its new modern environment in Castle Street.
In the event, all of these objectives were met in full
and the Commission can look back on a year of
satisfactory progress. As is already documented
elsewhere, concerns arose from external events,
notably the sub-prime debt crisis originating in the
United States, which represented the dominant feature
of the second half of the year. Although no immediate
impact has been felt in Jersey, lessons from the
experience in other countries, the nature of risk and
the lack of transparent valuations of certain market
instruments must clearly influence the Commission’s
own supervisory approach in the future. Furthermore,
there will be a need for a close level of monitoring of
those financial instruments that have gained heightened
profile during the financial markets crisis. Some of these
are to be found in Jersey and will require ongoing
attention well into 2008.
Main Achievements
During 2007, the Commission saw a continuation of
the move away from what may be termed desk-based
regulation to more active supervision. This translated
into a continuing high number of supervisory
examinations in all areas of the Commission’s activity
and an ever-closer focus on conduct of business.
The need to ensure that all previous examinations were
correctly followed up and remedial actions identified
taken forward by licence holders was as apparent as
ever. As has happened in the past, the end of a
sustained bull market and consequent financial
pressures that emerge during a down-turn are likely
to yield a number of problem cases requiring close
management, particularly where falling valuations
may cause investors to look more closely at the way in
which certain market instruments were sold to them.
Page 16
ANNUAL REPORT 2007
The Commission does not expect to be embroiled in
many such cases in Jersey but it does not discount the
possibility that some such instances will arise in the
significant international finance centre that the Island
has now unquestionably become.
Although unrelated to recent market turmoil,
the Commission also undertook one particularly high
profile action in 2007 before the Royal Court of Jersey
to wind up a number of funds, and these proceedings
are continuing. Generally during 2007 the Commission
further demonstrated that it is prepared to take firm
action where necessary, particularly in the pursuit of
two of its key aims being the protection of investors
and the preservation of the reputation of the Island in
commercial and financial matters.
Another significant feature of 2007 was the ongoing
extremely busy environment in the funds sector.
In addition to the Commission completing its project
to transfer fund functionaries from the Collective
Investment Fund (Jersey) Law 1988 (“CIF Law”)
to the Financial Services (Jersey) Law 1998
(“FS(J)L”), thereby firmly reinforcing the trend from
an authorisation regime towards the more classic
supervision regime, the year also saw a repeat
performance of authorisations at very high levels for
new funds, both Jersey expert funds and non-domiciled
funds. The transfer of functionaries to the FS(J)L was
ultimately achieved with Industry support, albeit only
after close consultation in order to narrow some
divergence of view over the required scope of the new
supervisory regime, most particularly in the form of new
Codes of Practice for fund services business. Whilst this
need for enhanced consultation perhaps mirrored past
experience of a certain discomfort amongst practitioners
when previously unregulated or lightly regulated
activities come into the scope of a heightened
supervisory regime for the first time, the Commission
does feel that the outcome has achieved an appropriate
balance between the effective supervision of a key
market sector with a continuing sensitivity to the
underlying commercial proposition.
An impact of the ongoing high level of fund
authorisations during 2007 was again on the
Commission’s income levels which, as well as with
income arising from another set of record company
registrations, were once again higher than budgeted.
With core operating costs running at forecast levels the
higher than target income resulted in an overall surplus
for the year as opposed to the small deficit projected
in the original budget. However, this apparently
satisfactory situation does not fully take into account
the impact of persistent high level of litigation costs for
actions which the Commission deems it necessary to
pursue, some of which were rolled over into the 2008
budget, as they were known but not fully expensed at
the end of 2007.
In addition to the above developments, recruitment
within the Commission gathered pace in 2007.
This was aimed both at bringing resources up to
the levels required by the greater supervisory efforts
being made in compliance with international standards
as well as replenishing any staff losses experienced
as a result of moves to the private sector, retirement
or in a minority of cases departures initiated by the
Commission itself. This meant a busy year in
recruitment terms but establishment has been
maintained at the required level and it is recognised
that this pattern is likely to remain the experience in the
future. This recognises that the Commission battles to
compete with the private sector in Jersey for key staff
commensurate with its goal of maintaining stability and
the levels of expertise and experience required in the
demanding environment that financial services
supervision represent.
General Policy and Legal Framework
A very significant body of work was undertaken in
2007 in these areas. In terms of primary legislation the
States of Jersey approved amendments to each of the
four regulatory laws administered by the Commission in
November 2007. Amongst the changes was the
clarification of certain powers and measures to enhance
the Commission’s overall ability to supervise to the
levels required by international standards, which will be
the focus of the IMF visit in late 2008. The opportunity
was also taken to bring these pieces of legislation into
line with the provisions laid down by the European
Convention on Human Rights.
A number of changes to secondary legislation also took
place, most particularly in the area of trust company
and investment business audit and accounts.
In the policy area a great deal was achieved, most
notably in the area of revisions to the various Codes
of Practice encompassing Trust Company Business,
Banking, completion of the General Insurance
Mediation Business Codes and in the area of fund
functionaries where, consequent upon the transfer
of such functionaries from the CIF law to the FS(J)L,
Codes were issued for the first time.
The year also saw significant development of the
Investment Business Codes, which required a
fundamental overhaul as they had not been
amended since their original introduction in 2001.
The consultation exercise was as a result somewhat
longer than had originally been envisaged but they
will be completed and issued in early 2008.
Given further evidence of the trend towards increasing
use of Jersey companies, the Registry had another very
busy year in 2007 with new incorporations totalling
4,050, an increase of 16.4% over the preceding year.
In addition, work on the Companies (Amendment
No.9) (Jersey) Law 200- was brought to fruition late
in the year and lodged for approval by the States of
Jersey, consolidating the ongoing modernisation of this
key law in the Island’s financial services infrastructure
over recent years. The Registry also maintained its
representation of Jersey on the international stage
in a number of fora and it was a matter of some
satisfaction that the Deputy Registrar was elected
by the International Association of Commercial
Administrators (“IACA”), the Association of United
States and Canadian Registries to chair its
international committee.
Significant progress was made in preparing for the
adoption of Basel II in the first quarter of 2008.
This represents the culmination of several years of
development effort in integrating this new international
capital accord for banks into Jersey’s prudential regime
for deposit takers.
However, perhaps the most significant policy initiative
in 2007 was in the development of an unregulated
fund product, aimed exclusivley at the institutional
and ultra high net worth section of the market place,
representing a significant collaborative effort between
Industry and the Commission. This was without doubt
a challenging project to create a competitive product
capable of maintaining the appropriate balance
between regulation and risk. The requisite Order giving
effect to an unregulated fund project in Jersey was
made at the beginning of 2008 and the take-up and
performance of the unregulated fund product thereafter
will be monitored closely by all concerned.
ANNUAL REPORT 2007
Page 17
‘Supervisory examinations enabled
the Commission to identify a number of
themes based around findings specific
to each sector.’
Page 18
ANNUAL REPORT 2007
Countering Money Laundering and the
Financing of Terrorism
As in 2007, developments in this field meant another
very busy year for the Commission. The Hand Book for
the Prevention of Money Laundering and Protection of
Financing of Terrorism was issued in soft launch form
in July 2007 and came into full force in early 2008.
This was accompanied by changes to the Money
Laundering Order and each of these developments is
in line with the Island’s strategy to remain fully aligned
with changing international standards in the AML/CFT
field. Furthermore, the need was recognised for all
relevant Island authorities to be involved in this quest,
and thus the year saw the formation of the Island’s
Anti-Money Laundering and Financing of Terrorism
Strategy Group (“AML/CFT Group”) in which the
Commission played a significant role. The AML/CFT
Group has promoted a number of changes to legislation
and also agreed to extend requirements to prevent and
detect money laundering to a number of businesses
that have previously been considered to be outside
the traditional “financial sector”, including lawyers,
accountants, estate agents and high value goods
dealers. It was also instrumental in producing draft
legislation to provide for the oversight of non-profit
organisations (“NPOs”) where terrorist financing is
perceived internationally to be a potential threat.
These two pieces of legislation foresee that the
relevant States of Jersey Minister will have the power
to designate an oversight body in respect of the
requirements in these new sectors. At the time of
writing it is expected that the Commission will become
this oversight body on the grounds that it has the
requisite level of experience and expertise in the AML/
CFT field to discharge the responsibility. This strategy is
also in line with the States of Jersey’s wish not to create
a number of new oversight bodies for each of the above
named sectors. These changes, together with other
AML/CFT initiatives, are also expected to put the
Commission and the Island in the best possible position
for the forthcoming IMF evaluation now programmed
for October 2008.
Supervision and Enforcement
During 2007, a total of 155 examinations were
completed by the Commission against a target of
131. This represented an achievement of target or
over-achievement of target in all areas bar the
insurance sector where resource constraints held
back the programmed examination schedule.
As in previous years, supervisory examinations enabled
the Commission to identify a number of themes based
around findings specific to each sector and these have
been reported back once again to the respective
Industry sectors both through formal reports and letters
to Industry executives providing a guide to shortcomings
and ways in which they can be addressed.
The experience of 2007 has shown that standards
continue to be somewhat variable between firms
and this was a pattern perhaps most marked in the
funds arena where volumes of business and market
pressure have undoubtedly been contributory factors
to certain deficiencies in meeting the requirements
of the Jersey expert funds regime. In all areas the
Commission’s continuing aim is to work with
management to agree remedial actions and to
achieve targeted outcomes, but in certain cases,
as demonstrated, the Commission will take further
enforcement action if deemed necessary.
In the enforcement area generally, 2007 saw a
continuation of the pattern of an ongoing high level
of unauthorised business in the form of fraudulent
activity, particularly through the medium of the Internet,
by various enterprises based outside the Island posing
as Jersey registered businesses. The Commission has
worked hard to identify such “scams” and to seek to
inhibit them, principally through the issue of public
statements to warn potential victims. In terms of more
domestic enforcement action, a number of other cases
were progressed that have also resulted in public
statements during the year, including the instance of
the banning of an individual from future employment
within the Jersey financial services industry.
During 2007, a significant level of assistance afforded
to regulatory authorities from other jurisdictions was
taken forward, most particularly linked to insider dealing
and market manipulation cases. Liaison visits to such
authorities, particularly to those in Italy and the United
States, were also a feature of the year.
ANNUAL REPORT 2007
Page 19
Priorities for 2008
The next year will undoubtedly continue to be
challenging for the Commission as it seeks to
consolidate the progress made over the past
12 months.
Preparations will continue for the impending
IMF evaluation visit, focusing especially on the
demonstration of supervisory effectiveness in both
prudentially supervised businesses and in those areas
where the Commission has been asked to extend its
remit to AML/CFT oversight. These objectives will
become the priority now that the programme of
primary and secondary legislation changes has
largely been achieved.
Consistent with this, the Commission has once
again scheduled a wide ranging and comprehensive
examination programme for the next 12 months based
on themes which have in large measure already been
shared with Industry, and will seek to combine this with
the needs of following up those findings from 2007
examinations. In addition, for those sectors coming
within oversight for AML/CFT purposes for the first time,
the Commission is committed to an effective “outreach
programme” seeking to educate and inform on relevant
requirements, coupled with the production of specific
guidance notes to assist the new sectors in achieving
effective compliance. The Commission’s designation as
the likely oversight authority has not been universally
welcomed by all and this is perhaps to be expected
given that its traditional remit as a prudential supervisor
demands a somewhat different approach in terms of
scope and degree of supervision than is required in the
new areas, where the oversight is limited to AML/CFT.
The challenge for the Commission, therefore, is to
demonstrate a differentiated, proportionate and
measured approach, based on the most effective
consultation possible to provide for the right balance
between the need to meet the international standards
in question whilst minimising disruption to commercial
operations. The Commission has formed a dedicated
AML Unit to progress this work and is committed to
success in this endeavour and looks forward to working
with the respective commercial sectors to achieve a
good result all round.
The introduction of the unregulated fund product in
early 2008 will be another key development marking
the coming year and the Commission will work together
with Industry to review the effectiveness of the new
product and play its part in considering any changes
needed as a result of actual market experience in
due course.
Page 20
ANNUAL REPORT 2007
The Commission expects to be in a position to publish
the Investment Business Codes during the first quarter
of the year and furthermore to complete the programme
of revision to all industry sector Codes of Practice with
the publication of the new Codes for funds vehicles
themselves to complement those already issued
covering fund services business.
Significant activity will continue in the international
arena and in the field of collaboration between the
Commission, Government and Industry. At the
same time the supervisory mandate will mean the
Commission keeping a very close eye on market
developments in general following the financial system
dislocation experienced during the latter part of 2007.
Finally, to end on a more personal note, this is the
second Annual Report to which I have contributed,
having now served as Director General of the
Commission since November 2006. During that time
I have consistently been encouraged and delighted by
the dedication and continuing efforts of the Commission
staff towards the achievement of excellence to which
we aspire in the field of financial services supervision.
This impression was reinforced by the professional
manner in which the move to the new offices at Castle
Street was carried out with minimum disruption to the
service provided by the Commission. As the events of
the past twelve months have demonstrated, this has
become an ever more complex and demanding
environment but equally a crucial one, as much so
in Jersey as in any other financial centre of stature
and integrity. I am fortunate indeed to have the support
of the Commission staff in this respect and believe
that the Island may continue to depend on their focus,
expertise and dedication in the pursuit of this most
important task.
‘The supervisory mandate will mean
the Commission keeping a very close
eye on market developments.’
ANNUAL REPORT 2007
Page 21
Structure Chart
Helen Hatton
Deputy Director General
Mark Sumner
Director Banking
and Insurance
Richard Hands
Deputy Director
Banking
Page 22
David Hart
Deputy Director
Insurance
ANNUAL REPORT 2007
David Banks
Director Securities
Debbie Sebire
Director Trust
Company Business
Barry Faudemer
Director Enforcement
Darren Boschat
Deputy Director
Securities
Chris Cooke
Deputy Director
TCB
Jamie Biddle
Deputy Director
Enforcement
Nick Troy
Deputy Director
AML Unit
Structure Chart
John Harris
Director General
Gary Godel
Chief Operations
Officer
Nigel Woodroffe
Chief Financial Officer
Annette Cullen
Director Human
Resources
Julian Lamb
Director Registry
Andrew Le Brun
Director International
& Policy
Shaun Roberts
Director I.C.T.
Chris Renault
Commission
Secretary
ANNUAL REPORT 2007
Page 23
‘The Commission completed 155
examinations during 2007 against
a target of 131 (including some
examinations that were outsourced).’
Page 24
ANNUAL REPORT 2007
The supervisory divisions* of the Commission are responsible for two of our five
aims. These are “to ensure that all entities we authorise meet fit and proper
criteria” and “to ensure that all entities we regulate are operating within accepted
standards of good regulatory practice”.
Authorisations
Examinations
One of the key objectives for 2007 was to transfer the
regulation of fund functionaries from the Collective
Investment Funds (Jersey) Law 1988 (“CIF Law”) to
the Financial Services (Jersey) Law 1998 (“FS(J)L”)
and to create a new class of business under the
FS(J)L, namely fund services business. The first phase
of this exercise was successfully completed in
November 2007 bringing the new regime into full effect
save in the main in respect of changing the terminology
from permits for unclassified funds to certificates.
Funds constituted as limited partnerships and unit
trusts are now regulated in their own right for the first
time and non-domiciled funds no longer need to seek
authorisation under the CIF Law. The second phase
of this objective will continue in 2008, at which time
the requirement for consent under the Control of
Borrowing (Jersey) Order 1958 (“COBO”) for those
collective investment funds still requiring a permit
under the CIF Law will be removed.
The Commission has
The Commission conducts
continued its focus
various types of examination.
on risk-based
Focused examinations take
supervision through
place where the Commission
wishes to examine specific
on-site examinations
aspects of a business;
and following up any
discovery examinations are
necessary action
to obtain information to
arising out of those
improve the Commission’s
examinations. The
understanding of a business;
and themed examinations
examination results
are undertaken where the
have also been fed
Commission has identified an
back to Industry in
aspect it wishes to examine
various ways - through
in a particular industry sector
seminars, presentations,
across a number of
different institutions.
dialogue with Industry
associations, letters to
chief executive officers (“CEOs”), the Quarterly
Newsletter and the website. The Commission
completed 155 examinations during 2007 against
a target of 131 (including some examinations that
were outsourced). There were 113 examinations
during 2006.
For insurance business, ten new Category A
Insurance Business permits were issued whilst six
were surrendered, leaving an increased total of 169
Category A permit holders. Two new Category B
Insurance Business permits were issued whilst one was
surrendered, leaving an increased total of 13 Category
B permit holders. In addition 18 General Insurance
Mediation Businesses were approved, bringing the total
to 118. As in previous years, mergers and acquisitions
in the Industry have led to the need for the submission
of insurance transfer schemes. The Commission
received three during the year for review and
subsequent approval by the Royal Court.
The trend of smaller sized firms merging to increase
their critical mass or being acquired by a number of
organisations whose strategy is to grow by acquisition
continued from 2006. During 2007, three trust
businesses were acquired by existing licence holders,
ten trust companies requested to have their registration
revoked, and four individuals registered to undertake a
single class of business had their registrations similarly
revoked. 188 affiliation leaders were registered to
undertake trust company business at the year-end.
Total Examinations 2007
Division
Themed
Focused
Discovery
Total
TCB
35
4
33
72
Funds
6
7
14
27
IB
10
4
9
23
Banking
19
5
3
27
Insurance
0
0
6
6
Total
70
20
65
155
Examination activity was a significant feature of 2007
with the majority of the Supervision Divisions exceeding
their proposed number of examinations. The main
issues that have arisen from the on-site examination
programme during 2007 are summarised by sector.
The Commission authorised two new deposit takers to
operate during 2007, taking the total number of
banking registrations in the Island to 48.
* The supervisory divisions consist of Banking,
Securities, Trust Company Business and Insurance.
ANNUAL REPORT 2007
Page 25
Banking
The Banking Division’s examination programme was
largely comprised of themed assessments in respect of
adherence to the Codes of Practice for Deposit-taking
Business, which became a formal requirement in
February 2007. In that respect, most focus was on
Section 3 of the Codes, which spans corporate
governance and risk management. The summary of
these findings will be published in 2008 but the key
areas of findings were in relation to: the quality of the
review processes in respect of politically exposed
persons; the existence and adequacy of reviews of
approved intermediaries; the existence and adequacy of
terms of reference for key committees; the appointment
of non-executive directors; and the existence and
adequacy of job descriptions.
The Banking Division also conducted a number of
focused examinations to address specific concerns plus
visits to banks in Guernsey and the Middle East for which
the Commission has home regulator responsibility.
Insurance
The Insurance Division conducted six on-site
examinations against a target for the year of 20.
This shortfall against target was mainly due to
the limited size of the team and the allocation of
resources for a self-assessment against the Core
Principles of Insurance Supervision issued by the
International Association of Insurance Supervisors.
Those examinations conducted were discovery
examinations, used to enable the Insurance Division
to obtain a better understanding of the risks faced by
the businesses assessed and how they mitigate these.
This information is then available for the completion of
entity risk models, which are used to facilitate the
Commission’s risk-based supervision.
In January 2007, the Commission published a
Guidance Note on its website regarding solvency
calculations for General Insurance Mediation
Businesses. This was designed to address issues
surrounding the completion of solvency calculations
that were identified in the themed examination
programme undertaken in 2006.
Page 26
ANNUAL REPORT 2007
Investment Business
The theme of the Investment Business Team’s
examinations was threefold: due diligence on new
products and services; suitability of advice; and human
resource issues. One of the key findings was that some
investment businesses appeared to be undertaking
unauthorised General Insurance Mediation Business,
following the recent introduction of that regime,
and those businesses have since made the necessary
applications to extend their classes of business.
Other findings included new employees being taken
on without the registered person having first carried
out sufficient checks with previous employers or
referees and new products being added to the list
of products recommended to clients without
documenting the due diligence undertaken on
those products.
Funds
The Funds Team’s examination theme for the first
half of the year was information provided to investors,
and corporate governance for the second half of the
year. In some cases, local fund functionaries were
not performing the necessary due diligence checks on
promoters and other parties in relation to new funds.
Thereafter, issues arose due to a lack of knowledge
of the structure of the funds and the attendant
responsibilities being taken on. Corporate governance
issues in some funds typically related to a failure to
demonstrate proper oversight of outsourced
or delegated functions. Other issues found related
to internal control systems (the lack of specific fund
procedures, no documented business continuity
plan and no policy regarding conflicts of interest,
especially for managed entities) and the compliance
function (compliance not reporting to the board,
no designated compliance officer or not sufficiently
independent, and a failure to monitor and report on
permit breaches).
‘Corporate governance issues in some
funds typically related to a failure to
demonstrate proper oversight of outsourced
or delegated functions.’
ANNUAL REPORT 2007
Page 27
Trust Company Business
The Trust Company Business Division performed
16 on-site examinations that focussed solely on
anti-money laundering (“AML”) risk management.
AML examinations will continue into 2008. The scope
of the AML examinations sought to focus on customer
take on procedures, monitoring of outstanding customer
due diligence, transaction monitoring, suspicious
activity reporting and AML reporting. Whilst a full
summary of the findings from this programme can
be viewed on the Commission’s website, in headline
terms, common findings were the lack of prospective
transaction monitoring; lack of ageing or risk weighting
of outstanding customer due diligence material
(though in nearly all cases this information was
being monitored); and to a lesser extent the timing
of customer payments versus the completion of
due diligence.
Common findings in respect of the other examinations
undertaken were deficiencies in corporate governance
(particularly where businesses had established a
committee structure but failed to establish terms
of reference or reporting back to the main board),
inadequate procedures and customer due diligence
deficiencies. A continuing trend from previous
years was that businesses were still struggling with
backlogs in periodic reviews, risk reviews and financial
statement preparation for entities under administration.
A number of businesses operating under a registration
for a single class of business were found to be acting in
a wider capacity in breach of Article 7 of the FS(J)L.
The Commission also continued to work closely with
businesses in upgrading and enhancing their customer
risk rating systems, which is essential to facilitate
compliance with the new risk-based AML regime being
implemented during 2008. With regard to managed
trust companies, there were a number of corporate
governance deficiencies both on the part of the
manager, in considering its role and responsibilities,
and the managed entity itself.
Page 28
ANNUAL REPORT 2007
Regulatory Developments
One of the main activities in the Supervision Divisions
during 2007 was the development and amendment of
Codes of Practice relating to all sectors of the Industry.
This included the introduction of Codes of Practice for
money service business and fund services business.
Money Service Business
Following a request from Government, the Commission
has agreed to undertake non-regulatory functions on
behalf of Government. The Commission’s remit is
therefore being extended to include the Anti-Money
Laundering and the Countering of the Financing of
Terrorism (“AML/CFT”) oversight of money service
businesses. A registration and notification regime is
currently being introduced and new Codes of Practice
were issued in July 2007. In response to the extension
of the Commission’s oversight role for AML/CFT,
a separate AML Unit was formed in the latter part
of 2007 to take on that responsibility.
Banking
The revised Codes of Practice for Deposit-taking
Business became a formal requirement in February
2007, following a six-month introductory period post
finalisation of these in 2006. They generated a fair
amount of enquiries from Industry but have largely
not proved to be a challenge for banks.
Similarly, liquidity management requirements were
consulted on in 2006 and established in the early
part of 2007. Revised liquidity reporting by banks
commences in the first quarter of 2008 and, in the
preceding period, the Commission has received and
considered a number of requests for banks to apply
behavioural adjustments in their management of
liquidity risk, reflecting market practice evolving
from the Basel II regime.
The start of 2008 will see the combination of several
years’ developmental efforts on translating the new
international capital accord for banks, Basel II, into the
Commission’s prudential regime for Jersey deposit
takers. This was achieved in line with the timescales
for adoption of most developed countries, including the
members of the EU, and reflected a collaborative
approach with our Guernsey and Isle of Man
counterparts. First quarter prudential reports submitted
by Jersey banks in April 2008 will reflect the new
format, whilst individual bank assessments in respect of
Pillar 2 considerations are likely to continue in full flow
until that time.
The absence of regulatory requirements for deposit
takers to hold capital against market risk was the one
aspect that Jersey’s banking regulatory regime was
found to be “materially non-compliant” by the IMF in
its 2003 report on Jersey. Whilst there is not a material
degree of exposure to market risk not already addressed
by previous prudential requirements, a requirement
to hold capital against all market risks has been
incorporated in the Commission’s revised requirements
under Basel II, which will fully satisfy the IMF finding.
The Banking Division has provided organisational and
secretarial support over a two-year period for a group
of Island stakeholders that has developed a voluntary
Code of Practice for businesses involved in lending
activities. It is hoped that this work will help reduce
the hardship caused by consumers being granted
inappropriately high levels of personal indebtedness
and improve the information available to them when
seeking credit facilities. The drafting stage was
completed in late 2007 and the response of individual
firms is now being explored by relevant members of
the steering group.
Funds
The major project during 2007 was the migration of
fund functionaries to regulation as fund services
business under the FS(J)L. Codes of Practice for Fund
Services Business were introduced in November 2007
to coincide with the migration. The Funds Team has
continued work on the introduction of an unregulated
fund product in liaison with Industry. This is nearly
complete and will be introduced by amending the CIF
Law. An Order in this respect is in an advanced state
of preparation and should be in force in the first quarter
of 2008.
Investment Business
The amended Codes of Practice for Investment
Business were issued for consultation in July 2007 and
it is intended to issue the new Codes in March 2008.
Once issued, the Codes will have a three-month
transitional period.
For both Funds and Investment Business there has
been a significant amount of work undertaken in
preparation for the IMF assessment resulting in four sets
of law drafting instructions, three consultation papers
and two position papers, in addition to a review of the
Commission’s procedures in these areas.
Trust Company Business
In preparing for the IMF visit, an end-to-end review of
the trust company regulatory regime was undertaken.
This review was carried out against the statements of
best practice laid down by the Offshore Group of
Banking Supervisors and pertinent international
standards as well as experience gained during the last
seven years of regulation. This resulted in revisions to
the Codes of Practices for Trust Company Business and
amendments to both the Accounts Order and the Assets
Order as well as amendments to the FS(J)L.
Insurance
Consultations on the introduction of Codes of Practice
for General Insurance Mediation Business and
amendments to the Codes of Practice for Insurance
Business were concluded in 2007 with the final Codes
being published in December 2007. Most of the
responses from Industry related to the Codes of
Practice for General Insurance Mediation Business and,
although these did not highlight any major barriers for
compliance by the Industry, the Commission granted a
three-month transitional period for the implementation
of these Codes.
ANNUAL REPORT 2007
Page 29
‘The Commission also continued to work
closely with businesses in upgrading and
enhancing their customer risk rating systems.’
Page 30
ANNUAL REPORT 2007
Communication with Industry
The Commission has continued the process of
communicating its strategic aims and objectives to
Industry, and providing feedback on best industry
practice and the results of its examination programme.
A series of workshop events were also held for Industry,
relating primarily to the proposed legislative changes
arising from the forthcoming IMF visit and also the
introduction of the AML/CFT Handbook. In September
2007, communication and strategy were combined,
at the start of the Commission’s business planning
cycle, with input from Industry on its priorities via the
Chief Executive Officer Forum. The Commission also
continued to publish its Quarterly Newsletter.
International Communication
The Commission continued its active involvement in
international regulatory fora.
The Banking Division maintained its support for,
and involvement with, the Offshore Group of
Banking Supervisors.
The Insurance Division was active in both the Offshore
Group of Insurance Supervisors and the International
Association of Insurance Supervisors (the “IAIS”).
The Commission will consider becoming a signatory to
the IAIS Multilateral Memorandum of Understanding on
Cooperation and Information Exchange during 2008.
KEY TASKS FOR 2008:
• The continued preparation for the IMF
assessment will be a critical and major project for
2008. This work will be completed using current
assessment methodologies published by the
Basel Committee, the IAIS, IOSCO and the
Financial Action Task Force.
• The on-site examination programme will be
maintained across all the Supervision Divisions
to ensure the effectiveness of the implementation
of the legal and regulatory frameworks, including
the revised AML/CFT Handbook.
• Reviews will be undertaken of the Outsourcing
Guide and the rules relating to recognized funds.
Further amendments will be made to the
Non-Domiciled Fund Guide.
• Codes of Practice for the fund vehicles themselves
will be introduced together with an amalgamated
Prospectus Order giving equal treatment to funds
constituted as open-ended or closed-ended
companies, limited partnerships and unit trusts.
• The changes made in 2007 to the regulatory
regime for fund services business will be
consolidated in 2008.
The Securities Division maintained its international
obligations by attending International Organisation
of Securities Commissions (“IOSCO”) meetings in
Tokyo, Madrid and Amsterdam, and dealing with
inter-regulator enquiries. Other regulatory visits were
made to Guernsey, the Isle of Man and Cape Town.
ANNUAL REPORT 2007
Page 31
‘The Commission also played a significant
role during the year in the Island’s
Anti-Money Laundering/Countering the
Financing of Terrorism Strategy Group’
Page 32
ANNUAL REPORT 2007
INTERNATIONAL STANDARDS AND
POLICY DEVELOPMENT
One of the Commission’s aims is to “match international standards in
respect of banking, securities, trust company business, insurance regulation,
anti-money laundering, and terrorist financing defences”. Within the Commission,
the International and Policy Division, the Supervisory Divisions and the Registry
develop policy to ensure that this aim can be met.
The International Monetary Fund (‘IMF’) will consider
how effectively Jersey has implemented international
standards of regulation and supervision. In particular,
the assessment will consider the legislation that the
Island has in place, the regulatory requirements that
are set by the Commission, and how that legislation
and those requirements have been implemented.
In line with the 2007 Business Plan, a comprehensive
self assessment exercise was undertaken early in the
year, which demonstrated that legislation and regulatory
requirements were broadly in line with international
standards. Nevertheless, a number of areas were
highlighted where legislation and requirements could
be improved - in particular where international
standards have recently been updated, or where
changes were considered necessary to bring legislation
into line with the provisions set by the European
Convention on Human Rights.
Much time and effort was spent in 2007 addressing
these areas. This involved the publication of a number
of position and consultation papers, and a series of
Industry briefing sessions.
As a result of this work, amendments to each of the
four regulatory laws (the CIF Law, the Banking Business
(Jersey) Law 1991, the Insurance Business (Jersey)
Law 1996, and the FS(J)L), were approved by the
States in November 2007, and are currently awaiting
approval by the Privy Council. In particular, changes to
the four regulatory laws will:
• explicitly recognise an existing power to prevent
an individual from working in the finance sector
in Jersey;
• provide for greater control of the individuals that
hold senior compliance and anti-money laundering
(“AML”) functions (referred to as “key persons”) at a
registered person;
In addition, each of the amendments will provide that a
decision that is taken by the Commission to issue a
public statement can be appealed to the Royal Court.
It is hoped that these amendments will come into force
in March or April 2008.
A number of changes to secondary legislation were
also progressed through the year. By the year-end,
updated provisions relating to the audit and accounts
of trust company and investment businesses had come
into force, and work continues on legislation to deal
with advertising and the protection of trust company
business assets.
The Commission also played a significant role during
the year in the Island’s Anti-Money Laundering/
Countering the Financing of Terrorism Strategy Group
(“AML/CFT Group”), which met for the first time in
January 2007 to discuss improvements to legislation to
prevent and detect money laundering. The AML/CFT
Group has promoted a number of changes to legislation
through the year, including approval by the States in
November 2007 to the introduction of standardised
reporting obligations under the Drug Trafficking Offences
(Jersey) Law 1988, the Proceeds of Crime (Jersey) Law
1999, and the Terrorism (Jersey) Law 2002 - where
there is knowledge, suspicion, or reasonable grounds
for knowing or suspecting that another person is
involved in money laundering. In February 2008,
the States also agreed to extend requirements to prevent
and detect money laundering, including the application
of customer due diligence procedures, to a number
of businesses that, until now, have been considered
to be outside of the “traditional” financial sector,
including lawyers, accountants, estate agents and
high value goods dealers. Legislation to provide
for oversight of these and other businesses with
requirements to prevent and detect money
laundering will be introduced.
• permit the Commission to publish conditions that it
attaches to a registration that is issued under one of
the four regulatory laws; and
• provide for greater consistency of powers and
sanctions across the four regulatory laws and in the
safeguards associated with the use of them.
ANNUAL REPORT 2007
Page 33
INTERNATIONAL STANDARDS AND
POLICY DEVELOPMENT
The scope of regulatory legislation to cover money
service business (bureau de change and money
transmission services) and requirements have been
introduced to provide certain information about the
originator of a transaction - where funds are transferred
electronically. In July 2007, the Commission published
a final draft of the Handbook for the Prevention and
Detection of Money Laundering and the Financing of
Terrorism (the “AML/CFT Handbook”) - which sets
regulatory requirements for, and provides guidance to,
businesses that are regulated under one or more of the
four regulatory laws. The AML/CFT Handbook was
published on 4 February 2008, at the same time that
the Money Laundering (Jersey) Order 2008 came into
force. It is this instrument that sets legal requirements
to prevent and detect money laundering.
The Commission has closely followed the introduction
of a Single Euro Payments Area (“SEPA”) in the
European Economic Area, and has led Industry and
Government discussion on whether Jersey should apply
to join SEPA. The discussion has focussed on whether
Jersey’s competitive advantage as a financial centre
could be affected if it is not able to make low cost
transfers in euros.
The Commission has also played a central role in
discussions with the UK’s Professional Oversight Board
on how Jersey might introduce an auditor oversight
regime that is in line with the European Union’s (“EU”)
Statutory Audit Directive. Without such a regime in
place, it will be necessary for some auditors (those that
audit companies that have securities that are admitted
to trade on regulated markets in the EU) to be registered
with, and overseen by, regulators in each of the
Member States of the EU where those securities are
admitted to trade.
The Commission has also continued to work very
closely with Her Majesty’s Treasury in the United
Kingdom (“UK”), to support the UK’s application to the
European Commission to be able to continue to use
existing UK domestic payment systems to make
transfers to, and accept transfers from, Jersey banks.
As in 2006, this application and associated work has
involved much time and effort, but it is important
work since Jersey businesses and individuals might
otherwise be deprived of a cheap and efficient way of
making payments to, and receiving payments from,
the UK. The application is dependent upon the UK
being able to demonstrate that Jersey has in place
requirements to prevent and detect money laundering
that are equivalent to requirements in place in the EU.
Page 34
ANNUAL REPORT 2007
During the year, the Commission’s international contact
programme was further developed, with five new
memoranda of understanding signed with the British
Virgin Islands Financial Services Commission, the Office
of the Superintendent of Financial Institutions in
Canada, the Central Bank of Cyprus, the Cyprus
Securities and Exchange Commission, and the Irish
Financial Services Regulatory Authority.
So, whilst much of the Commission’s focus in 2007
was on preparing for the IMF assessment in 2008,
the Commission also continued to work actively,
mostly behind the scenes, to facilitate Industry’s
access to European markets.
KEY TASKS FOR 2008:
• The increased communication with Government
will continue, as the Government has ownership of
a number of AML/CFT issues, so that the Island as
a whole is fully prepared for the IMF assessment.
• Provision of support to, and participation in,
the AML/CFT Group.
• Maintenance of the AML/CFT Handbook.
• Continuation of the regular liaison meetings with
the commission’s in Guernsey and the Isle of Man
on matters of mutual interest.
ENFORCEMENT
The Enforcement Division is responsible for work relating to the aim of the
Commission “to identify and deter abuses and breaches of regulatory standards”.
Increase in caseload
2007 has proved to be a challenging and demanding
year for the Enforcement Division with new staff taking
up post and a record number of new cases requiring
investigation. In all, 72 new cases were commenced
and subjected to investigation compared to 58 in 2006
and 48 in 2005. 63 cases were finalised by the end of
the year. Combining the cases that flowed from 2006
into 2007, the total number of cases worked on in
2007 amounted to 93.
New staff
Staffing levels in Enforcement were brought up to
strength with the arrival of three new members of
staff in June, with the staffing level at the end of
2007 being five.
Enforcement discharging the
Commission’s international obligations
Regulatory authorities from other jurisdictions can
formally request assistance from the Commission to
further their own investigations. Provided the request
meets with all legal requirements, the Commission
is able to serve notices requiring the production of
evidence on behalf of the regulatory authority making
the request. 18 such requests were processed in 2007,
mainly for investigations linked to insider dealing,
market manipulation or providing false and misleading
information. During the year, the Commission provided
affidavit evidence to the Australian Securities and
Investments Commission and also received formal
letters thanking staff for the prompt and diligent
co-operation from both the United States and Greece.
In order to further domestic investigations,
the Enforcement Division has proactively sought
evidence from seven overseas regulatory authorities.
These investigations currently remain ongoing.
Enforcement using the Internet
against criminals
Criminals can target members of the public using
scam websites. To add a degree of respectability and
credibility to the scam, the criminal often uses the
identity of a legitimate company or simply invents the
company, but using a legitimate address, or address
that appears to be genuine, from a highly regarded
jurisdiction. 2007 saw several such cases where
criminals purported to operate a local financial services
company or created a false Jersey address. The aim
is always to defraud and deceive. Enforcement gives
priority to investigating such cases and promptly
engages the criminal or issues a public statement to
warn the public. In 2007, the Commission issued nine
warnings via the Internet. The feedback via the Internet
from members of the public worldwide was particularly
encouraging. In many cases the member of the public
was saved from making a purported investment
through the scam website/scam entity and thanked
the Commission for issuing a public statement.
Extracts from such letters of thanks include the
following comments:
www.arran-funding.com
“I was about to go into a very large transaction with
this so called company and fortunately I exercised due
diligence and upon further investigation I came across
this notification and even though it has destroyed my
faith in human kind in a big way I am grateful that I
had the insight to continue to search and lucky to find
the information posted. Once again thank you”.
- Member of the public in the US.
Bank National TSB Offshore Limited
“Your email is very much appreciated. I will take your
advice. You saved me from becoming a victim of a
scam. You have made a positive difference. Keep up
the good work”.
- Member of the public in the Philippines.
Leeds Bank
“Thank you very much for the valuable information …
I have not remitted any money whatsoever because I
went through the Commission report on the website,
so I am saved. Thanks once again…”
- Member of the public in Malaysia.
ANNUAL REPORT 2007
Page 35
‘Criminals can target members of the public
using scam websites. The aim is always
to defraud and deceive. Enforcement gives
priority to investigating such cases.’
Page 36
ANNUAL REPORT 2007
Enforcement
Enforcement Actions
Interaction with the Industry
During the year the Commission continued an action
against an independent financial advisor (“IFA”) to
recover monies that had been lost due to misleading
investment advice having been given to clients.
In February 2007, judgment was given in favour of
the Commission and action was begun in the UK High
Court against the IFA’s professional indemnity insurer.
The Commission also made a representation to the
Royal Court under the Collective Investment Fund
(Jersey) Law 1988 to wind up a number of funds and
replace the fund functionaries, and these proceedings
will continue into 2008.
On the basis that prevention is better than cure,
the Enforcement Division has participated in 18
presentations to the Industry in 2007 on topics
ranging from the work of the Enforcement Division
to anti-money laundering issues and ways to
prevent fraud.
KEY TASKS FOR 2008:
Use of directions to protect the Industry
and members of the public
• The Development of the Commission’s
intelligence system in accordance with the
National Intelligence Model.
The Commission issued directions on two occasions
during 2007 to individuals effectively requiring them
to obtain the approval of the Commission before
re-entering employment within the Industry. The first
case involved an incident of dishonesty connected to
the payment of commission payments from investment
advice. The second case arose from the use of bogus
educational qualifications to obtain employment by false
pretences. Details of the second case can be found on
the Commission’s website.
• Engaging the public and industry with a
publicity campaign to promote the prevention
of financial crime.
• Consultation on the recovery of investigation
costs through statutory provision.
• Consultation on an enabling power for fining.
Enforcement Case Statistics
Total Enforcement Cases during the period from 1 January to 31 December 2007
Financial
Services
(J) Law Investment
Business
Financial
Services
(J) Law
- Trust
Company
Business
Financial
Services
(J) Law
- General
Insurance
Mediation
Business
Active
1 January
2007
3
11
1
0
New cases
in year (to
31/12/07)
14
21
2
Total during
year (to
31/12/07)
17
32
Total
shown as
percentage
18.3
Balance 31
December
2007
5
Financial
Financial
Services
Services
(J) Law
(J) Law - Market
Misleading
Manipulation Statements
& Practices
Banking
Business
(J) Law
Collective
Investment
Funds (J)
Law
Control of
Borrowing
Order
Companies
(Jersey)
Law
Company
Securities
(Insider
Dealing)
(J) Law
Insurance
Business (J)
Law
Total
0
2
2
0
0
1
1
21
4
5
6
6
1
5
8
0
72
3
4
5
8
8
1
5
9
1
93
34.3
3.2
4.3
5.4
8.6
8.6
1.1
5.4
9.7
1.1
100
12
1
2
0
2
3
0
1
4
0
30
Percentage breakdown of Enforcement activity during the year ended 31 December 2007
Financial Services (J)Financial
Law - Investment
Services (J)
Business
Law - Investment
18.3% Business 18.3%
Law - Trust
Services
Company
(J) Law
Business
- Trust 34.3%
Company Business 34.3%
Law - General
Services
Insurance
(J) Law Mediation
- General Insurance
Business 3.2%
Mediation Business 3.2%
Law - Market
Services
Manipulation
(J) Law - Market
4.3% Manipulation 4.3%
Law - Misleading
Services (J)
Statements
Law - Misleading
& Practices
Statements
5.4% & Practices 5.4%
Banking Business (J)Banking
Law 8.6%
Business (J) Law 8.6%
Collective InvestmentCollective
Funds (J)Investment
Law 8.6%Funds (J) Law 8.6%
Control of BorrowingControl
Order 1.1%
of Borrowing Order 1.1%
Companies (J) Law 5.4%
Companies (J) Law 5.4%
Company Securities Company
(Insider Dealing)
Securities
(J) (Insider
Law 9.7%
Dealing) (J) Law 9.7%
Insurance Business (J)
Insurance
Law 1.1%
Business (J) Law 1.1%
ANNUAL REPORT 2007
Page 37
‘The Director, Registry, has continued to
promote the Jersey Registry internationally.’
Page 38
ANNUAL REPORT 2007
Registry
The Commission operates Jersey’s Registry for companies, limited liability
partnerships, limited partnerships and business names. The main ongoing
work of the Registry is the incorporation of new entities and responding to
enquiries concerning entities on its Registers. The Registry’s work complements
the Commission’s aim to “ensure that all entities we authorise meet fit and
proper criteria”.
The Registry incorporated 4,050 companies in 2007,
another record year, beating the previous record holding
year of 2006 by 16.4%. The increase shows the level
of business activity in the Island during 2007.
Limited partnership formations during the year were
120 compared to 160 during 2006.
Nearly all other Registry registrations and processing,
such as special resolutions and searches, have
significantly increased.
The Registry adheres to published response time-scales,
as shown in the table on page 44.
Automation and e-commerce projects
During 2007, the online search facility, online
monitoring and the upgraded online filing system were
progressed to final test systems. All systems have been
embedded in a new website format to be known as
Easy Company Registry (“ECR”). Using the feedback
from the users of the online filing system during 2006
and 2007 our web designers have been tasked with
making the look and feel user-friendly. The online
environment is due to be released in the early part of
the second quarter of 2008, after extensive testing by
a pilot group made up of registry users.
In November 2007, the Registry User Group met
and discussed a number of issues such as the quality
of service provided by the Registry, online services,
business volumes flowing through the Registry,
new products and fees. Sub-groups were set up to
review fees, pilot the online registry environment
and continue to monitor the new draft Registration of
Business Names (Jersey) Law 200- (the “Business
Names Law”).
During 2007, the progression of the Business Names
Law was put on hold due to the large number of
legislative developments required by the Commission
in order to reflect changing international standards.
This, though, did not stop the development of the
automated disputes resolution system, which is a
fundamental part of the new Business Names Law.
A benefit from the delay has been to allow changes
in the Companies (Jersey) Law 1991, the Limited
Partnerships (Jersey) Law 1994 and the development
of a Foundations Law to be taken into account.
Revised Jersey intellectual property rights laws,
which are being developed in 2008, will need to
be reviewed along side the Business Names Law.
ANNUAL REPORT 2007
Page 39
Registry
International Promotion of the
Jersey Registry
KEY TASKS FOR 2008:
The Director, Registry, has continued to promote the
Jersey Registry internationally, speaking at events such
as the Corporate Registries Forum in Singapore and the
European Commerce Registries’ Forum (“ECRF”) in
Latvia. Jersey is also responsible for the management
and enhancement of the ECRF website. A local website
design firm has secured the contract to create the new
ECRF website.
• Implemention of the Registry’s new online
environment and commence work on
business to business (“B2B”) developments
for Registry users.
After entering into an information sharing agreement
with the European Business Register (“EBR”) in
2006, basic Jersey company information was available
through the EBR network from May 2007. The EBR
now has a membership of more than 21 European
countries providing access to details on more than
20 million companies. The Director, Registry,
attended and spoke at two EBR general meetings,
and he also chaired the Corporate Governance
Committee during the year.
In May 2007, the Director, Registry, attended and
spoke at the International Association of Commercial
Administrators (“IACA”). IACA represents the company
registries of the United States (“US”) and Canada.
The Director, Registry, was elected to be the chair of
the international section of IACA and a director of the
board. The US is currently reviewing its disclosure
requirements for the beneficial ownership of US
companies and other global issues effecting registries.
Jersey continues to promote greater communication
between registries globally. Contributions to Business
Registries Interoperability Through Europe (“BRITE”)
during 2007 have kept initiatives on cross border
migration to the fore, ensuring that the Jersey Companies’
Registry continues to be active internationally.
Page 40
ANNUAL REPORT 2007
• Maintenanace of an efficient service to
users of the Registry.
• Delivery of the revised Business Names Law and
promotion of, and guidance to, the introduction
of Amendment Nos. 9, 10 and 11 of the
Companies (Jersey) Law 1991.
• Promotion of the Jersey Companies’
Registry internationally.
‘The Registry incorporated 4,050 companies
in 2007, another record year, beating the
previous record holding year of 2006 by
16.4%. The increase shows the level of
business activity in the Island during 2007.’
ANNUAL REPORT 2007
Page 41
‘Delivering a full building move onto a new
voice and data network without loss of
production time was seen as a great success.’
Page 42
ANNUAL REPORT 2007
THE SUPPORT DIVISIONS
One of the aims of the Commission is to “ensure the Commission operates
effectively and efficiently…”. A number of Divisions are responsible for ensuring
that the Commission has in place the necessary information technology, human
and physical resources to ensure that this aim is met.
Support Divisions - Information,
Communications and Technology
and Human Resources
The Commission’s lease on Nelson House, David Place
expired on 23 June 2007. The Commission
successfully moved into its new offices at 14-18
Castle Street at the beginning of May 2007. This was
achieved with minimal disruption to the Commission’s
programme of work and the provision of key services to
Industry. The Commission is now situated at the heart
of the growing financial district and the inclusion of
larger meeting rooms has enabled the Commission to
hold more events for Industry at its new premises.
Information, Communications
and Technology (“ICT”)
2007 proved to be another busy year for ICT.
Delivering a full building move onto a new voice
and data network without loss of production time
was seen as a great success.
ICT has continued to deliver a number of capital
projects, including the first phase of the new Basel II
project, new funds module, and an in-house developed
risk model. Key projects for the Registry include access
to the European Business Register and a new
monitoring solution for Jersey companies to monitor
all their electronic filings, which will act as an aid to
prevent corporate fraud.
The Division has expanded by one member who
will concentrate on Internet services. This extension
will assist all future software developments, as each
new system will have the capability to allow Industry
to communicate more easily with the Commission
and securely supply data using this effective
business channel.
Human Resources (“HR”)
The Commission expects all employees to act in a
manner consistent with its values, these being
excellence, professionalism, integrity, teamwork,
and respect for both colleagues and external clients.
With pressure to meet changing external requirements
of regulation, the Commission’s approach needs to be
reflected in day-to-day practices and culture within the
organisation. At the forefront of this change, the HR
function provides continued and growing support
to establishing an environment in which personal
and professional learning and growth will meet
these demands.
The Commission has been recognised for the Investors
in People (“IiP”) Recruitment and Selection Award,
reflecting the progress that has been achieved in
recruitment and selection strategies. The Commission
first achieved the IiP standard in 2001 and this award
came as part of the successful completion of the
ongoing assessment programme. In addition, the
Commission received an award from the Jersey Child
Care Trust in 2007 for being a family friendly employer.
KEY TASKS FOR 2008:
ICT
• Continuation of the Registry automation and
web-enablement projects.
• Continued integration of the Commission
software and databases to improve access
and management of information.
• Creation of workflow processes to improve
operational efficiency.
HR
• Enhancement of key policies to ensure
compliance with the next phase of the
Employment (Jersey) Law 2003.
• Introduction of new processes to support
work with existing employees to fairly reward
excellent and outstanding performance.
• Continued support of career development
by offering a range of structured and
focussed programmes.
ANNUAL REPORT 2007
Page 43
statistical annex
Investment Business
Funds under investment management
80
Total funds under management (Class B of the
Financial Services (Jersey) Law 1998 = £78.8 billion.
70
The total number of clients of investment managers
= 17,629
Funds under
management (£ billions)
Number of
clients
31 December 2005
49.2
19,570
31 December 2006
62.1
18,619
31 December 2007
78.8
17,629
50
£ billions
Date
60
40
30
20
10
Insurance Business
0
31 December
2005
Total number of insurance licences = 182 of which:
31 December
2006
31 December
2007
Category A = 169
Category B = 13
At 31 December 2007 there were 117 registered general insurance mediation businesses.
Companies
Registry Processing - performance against target
All Companies %
Partnerships %
Searches %
Certification %
Business names %
Target
95 achieved
within 2 days
95 achieved
within 2 days
95 achieved
within 2 days
95 achieved
within 2 days
90 achieved
within 2 days
Achieved
98.3
99.1
100
100
98.7
Registry Processing - items processed
Company searches
Printed search
documents
Business names
Limited
partnerships
Certificates of
good standing
2005
12,413
103,992
775
113
2,108
2006
14,700
129,369
810
160
2,008
2007
14,900
178,125
713
120
1,999
Date
Quarterly Company Incorporations
Page 44
Year
31 March
30 June
30 September
31 December
Annual Total
2005
608
697
714
855
2,874
2006
921
875
774
909
3,479
2007
830
1,549
873
798
4,050
ANNUAL REPORT 2007
Statistical Annex
Live Companies on the Register
Live Companies on the Register
34.0
At 31 December 2007 (2006) there were 33,683
(32,155) live companies registered in Jersey.
31
March
30
June
30
September
31
December
2005
31,177
31,568
31,943
31,162
2006
31,664
32,234
31,996
32,155
2007
32,617
33,587
33,624
33,683
33.0
Number of Companies (thousands)
Date
33.5
32.5
32.0
31.5
31.0
30.5
Banking
30.0
31 March
30 June
Banks and Bank Deposits - £ billions
2005
30 September
2006
31 December
2007
Date
Number of banks
Sterling
Currency
Total
31 March 2005
48
52.621
109.580
162.201
30 June 2005
50
54.003
119.015
173.018
30 September 2005
49
55.189
124.467
179.656
31 December 2005
47
55.280
129.361
184.641
31 March 2006
46
56.991
131.003
187.995
30 June 2006
46
57.694
126.003
183.698
30 September 2006
45
59.275
128.282
187.557
31 December 2006
46
60.609
129.088
189.697
31 March 2007
46
63.481
135.104
198.585
30 June 2007
47
66.476
145.270
211.746
30 September 2007
48
69.614
149.912
219.526
31 December 2007
48
69.401
142.918
212.320
Growth in Bank Deposits
250
200
£ billions
150
100
50
0
31 December
2005
31 December
2006
Sterling
31 December
2007
Currency
ANNUAL REPORT 2007
Page 45
Statistical Annex
Banking
Analysis of Deposits - 31 December 2007 (£ billions; currency stated in sterling equivalent)
Residence of depositors
Sterling
Currency
Jersey Resident Depositors
9.921
5.819
15.740
Jersey Financial Intermediaries etc
7.040
8.285
15.325
U.K., Guernsey & I.O.M. + unallocated Jersey, UK etc
29.479
24.259
53.738
Subtotal
46.440
38.363
84.803
Other EU Members
3.620
13.480
17.100
European Non EU Members
7.536
57.194
64.730
Middle East
1.422
10.904
12.326
Far East
2.777
5.818
8.595
North America
2.777
12.408
15.185
Others, Unallocated non Jersey, UK etc
4.828
4.751
9.579
Subtotal
22.961
104.556
127.517
Overall total of deposits
69.402
142.918
212.320
Sterling
Currency
Total
4.7%
2.7%
7.4%
Percentage of Total
Jersey Resident Depositors
Jersey Financial Intermediaries etc
3.3%
3.9%
7.2%
U.K., Guernsey & I.O.M. + unallocated Jersey, UK etc
13.9%
11.4%
25.3%
18.1%
39.9%
Subtotal
21.9%
Geographical analysis
of deposit-taking licence holders
6.3%
8.1%at 31 December 2007.
Other EU Members
1.7%
European Non EU Members
3.5%
26.9%
30.5%
Middle East
0.7%
5.1%
5.8%
Far East
1.3%
2.7%
4.0%
North America
1.3%
5.8%
7.2%
Others, Unallocated non Jersey, UK etc
2.3%
2.2%
4.5%
Subtotal
10.8%
49.2%
60.1%
Overall total of deposits
32.7%
67.3%
100.0%
Geographical analysis of deposit-taking licence holders at 31 December 2007.
UK 17
Other EU 15
Switzerland 3
North America 6
Middle East 3
Africa 3
Asia 1
UK 17
Other EU 15
Switzerland 3
North America 6
Middle East 3
Page 46
Total
ANNUAL REPORT
Africa 2007
3
Asia 1
Statistical Annex
Funds
Collective Investment Funds (Jersey) Law 1988 (the “Law”)
Control of Borrowing (Jersey) Order 1958 (The “Order”)
Summary of Statistical Survey of Funds Serviced in Jersey as at 31 December 2007
From 1 October 2003 we have excluded from the figures, the collective investment funds for which a permit
was issued under the Law for the function of distributor or similar minor function. However, we now collect
statistics on the private schemes administered in the Island, which, although not requiring a permit under the
Law, require consent under the Order (such funds are termed “COBO Funds”). Funds regulated under the Law
are referred to herein as “CIFs”.
Date
Net asset value (£ billions)
Number of funds
Number of separate pools
31 December 2005
137.430
965
2,437
31 December 2006
179.111
1,157
2,658
31 December 2007
246.150
1,311
2,934
Analysis of CIFs and COBO Funds
Fund type
Open-ended/
Closed-ended
CIFs
Closed
82.993
465
563
CIFs
Open
146.041
606
2,115
CIF Sub Total:
229.034
1,071
2,678
Total NAV £ billions
Number of
separate pools
Total No. of funds
COBO Funds
Closed
9.932
194
194
COBO Funds
Open
7.184
46
62
COBO Sub Total:
17.116
240
256
Total:
246.150
1,311
2,934
Analysis by Class - 31 December 2007
Analysis of funds by classification
180
Fund type
Net asset value
(£ billions)
Number of
funds
Number of
separate pools
160
Unclassified CIFs
167.998
679
2,080
140
Recognised CIFs
2.738
9
55
Expert CIFs
58.298
383
543
CIFs Sub Total
229.034
1,071
2,678
COBO Funds
17.116
240
256
CIFs & COBO
Funds Total
246.150
1,311
2,934
Value £ billions
120
100
80
60
40
20
0
Unclassified
CIFs
Recognised
CIFs
2005
Expert
CIFs
2006
COBO
Funds
2007
ANNUAL REPORT 2007
Page 47
Statistical Annex
Funds
CIFs & COBOs - Analysis By Investment Policy Codes
Number of single
class funds
Number of
umbrella sub-funds
Sales
£ millions
Repurchases
£ millions
NAV
£ millions
B01 - Bond-Global
5
65
876
694
4,845
B02 - Bond-UK Debt
3
13
35
79
1,647
B03 - Bond-US Debt
1
15
536
272
1,842
B04 - Bond-Europe
1
23
189
320
1,979
B05 - Bond-Other
4
52
319
297
6,841
Sub Total Bond
14
168
1,955
1,662
17,154
Investment policy
E01 - Equity-UK
25
33
735
513
10,353
E02 - Equity-Europe (Including UK)
16
33
643
822
6,118
E03 - Equity-Europe (Excluding (UK)
14
10
1,458
1,098
6,346
E04 - Equity-US (North America)
9
29
684
976
6,413
E05 - Equity-Japan
3
11
278
240
1,209
E06 - Equity-Far East (Including Japan)
4
10
17
63
567
E07 - Equity-Far East (Excluding Japan)
3
13
188
275
1,622
E08 - Equity-Global Emerging Markets
6
6
400
213
1,824
E09 - Equity-Global Equity
37
134
4,952
1,835
23,393
E10 - Equity-Other
43
59
5,539
4,162
21,631
Sub Total Equity
160
338
14,894
10,197
79,476
X01 - Mixed-Mixed Equity and Bond
24
228
2,435
978
16,957
Sub Total Mixed
24
228
2,435
978
16,957
M01 - Money Market-Sterling
2
11
118
56
704
M02 - Money Market-US Dollar
1
11
82
102
409
M03 - Money Market-Euro
0
10
134
82
711
M04 - Money Market-Swiss
0
4
13
4
161
M05 - Money Market-Other
0
3
2
4
27
Sub Total Money Market
3
39
349
248
2,012
S01 - Specialist-Venture Capital/
Private Equity - Emerging Markets
45
0
18
0
2,854
S02 - Specialist-Venture Capital/
Private Equity - Other
212
5
264
56
17,724
S03 - Specialist-Real Property
155
33
2,142
239
30,365
S04 - Specialist-Derivatives
17
11
802
25
950
S05 - Specialist-Traded Endowment Policies
28
22
186
126
1,420
S06 - Specialist-Hedge/
Alternative Investment Funds
399
827
7,881
7,095
61,477
S07 - Specialist-Other
68
138
6,760
473
15,761
Sub Total Specialist
924
1,036
18,053
8,014
130,551
1,125
1,809
37,686
21,099
246,150
Grand Total
Page 48
ANNUAL REPORT 2007
Value £ billions
100
80
Statistical Annex
60
40
Funds - Analysis by Investment Code Policies
140
20
120
0
2005
2006
2007
100
Value £ billions
Specialist
Equity
80
Bond
Mixed
60
Money Market
Breakdown of Trust Company Businesses by size.
40
20
0
2005
2006
2007
Specialist
Equity
Bond
Mixed
Money Market
Breakdown of Trust Company Businesses by size.
Very Large (50+ employees) 8%
Large (30-49 employees) 7%
Medium (10-29 employees) 21%
Small (1-9 employees) 50%*
Single class registration 7%
Managed Trust Companies 7%
* includes those regulated to undertake
a single class of business
Very Large (50+ employees) 8%
Large (30-49 employees) 7%
Medium (10-29 employees) 21%
Small (1-9 employees) 50%*
Single class registration 7%
Managed Trust Companies 7%
* includes those regulated to undertake
a single class of business
ANNUAL REPORT 2007
Page 49
‘The Commission expects all employees to
act in a manner consistent with its values,
these being excellence, professionalism,
integrity, teamwork, and respect for both
colleagues and external clients.’
Page 50
ANNUAL REPORT 2007
FINANCIAL STATEMENTS
ANNUAL REPORT 2007
Page 51
INTRODUCTION TO THE FINANCIAL STATEMENTS
Fee income, at approximately £14.6 million, was some £1 million higher than in 2006. The increase came
primarily from funds business, from registry fees, and from the additional income arising from the revised fee
scales applicable to trust company business that took effect from January 2007.
Bank deposit interest received rose by £157,000 as a result of the higher fee income and the increase in interest
rates during the year.
Under the provisions of Article 18 of the Financial Services Commission (Jersey) Law 1998, the Commission
pays an amount each year into the annual income of the States of Jersey Treasury. The annual contribution to the
States remained at £4.1 million in 2007. After taking this payment into account, the net income available to the
Commission for its own expenditure increased to £11.1 million this year from £9.8 million in 2006.
Staff costs increased as a consequence of the increasing scope of regulation, including the establishment of an
anti-money laundering unit. The Commission has been increasing staff numbers to a level that is sufficient for it
to be able to properly carry out its functions.
The Commission’s lease on its offices expired in 2007, so in May the Commission moved to new premises.
Expenditure on accommodation therefore increased by £200,000 as a result of this move, although the new
lease includes a rent-free period that will be accounted for over the full term of the contract.
In order to maintain an appropriate level of on-site examinations of regulated businesses, in 2007 the
Commission continued the practice that it began in 2005 and employed external professional firms to provide
advice and assistance, particularly the performance of some themed examinations on behalf of the Commission.
The Commission continued to manage its finances carefully, but during the year there was higher expenditure on
computer systems in order to improve administrative efficiency, and on travel costs so as to maintain and extend
contacts with overseas regulatory authorities and international standard-setting organizations.
The amount spent on investigations during the year rose to £882,000 from £519,000 the year before, because
of the advent of two new major investigations involving regulatory intervention that remain ongoing. Despite this,
the Commission has continued its efforts to work with regulated businesses to resolve problems before they reach
the stage where formal regulatory action needs to be taken.
Operating expenses rose from £8.9 million to £10.8 million so, after accounting for the increased income,
the net result for the year was an operating surplus of £303,000 and a consequent rise in reserves to nearly
£5 million. The Commission’s policy in respect of its accumulated reserve is to build up such a reserve equal to
one quarter’s operating expenditure plus the average of one year’s cost of investigations and litigation, in order to
meet contingencies.
The auditors, PKF (UK) LLP, who were appointed in accordance with Article 21 of the Financial Services
Commission (Jersey) Law 1998, have indicated their willingness to continue in office.
Page 52
ANNUAL REPORT 2007
statement of commissioners’ responsibilities
The Commissioners are responsible for preparing the Annual Report and the financial statements in
accordance with applicable law and regulations.
The Financial Services Commission (Jersey) Law 1998 requires the Commissioners to prepare financial
statements for each financial year. Under that law the Commissioners have elected to prepare the financial
statements in accordance with United Kingdom Accounting Standards and applicable Jersey law.
The financial statements are required to give a true and fair view of the state of affairs of the Commission
and of the surplus or deficit of the Commission for that year. In preparing these financial statements the
Commissioners are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed, and subject to any material
departures disclosed and explained in the financial statements; and
• prepare the financial statements on the ongoing concern basis unless it is inappropriate to presume
that the Commission will continue in business.
The Commissioners are responsible for keeping proper accounting records that disclose with reasonable
accuracy at any time the financial position of the Commission and enable them to ensure that the financial
statements comply with the Financial Services Commission (Jersey) Law 1998. They are also responsible
for safeguarding the assets of the Commission and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Commissioners are responsible for the maintenance and integrity of the financial information included
on the Commission’s website. Legislation in Jersey governing the preparation and dissemination of the
financial statements and other information included in Annual Reports may differ from such legislation in
other jurisdictions.
For and on behalf of the Board of Commissioners
C. F. Renault
Commission Secretary
2 May 2008
PO Box 267
14-18 Castle Street
St Helier
Jersey
Channel Islands
JE4 8TP
ANNUAL REPORT 2007
Page 53
INDEPENDENT AUDITORS’ REPORT TO THE MINSTER FOR
ECONOMIC DEVELOPMENT
We have audited the financial statements of the Jersey Financial Services Commission for the year ended 31 December
2007 which comprise the Income and Expenditure Account, the Balance Sheet, the Cash Flow Statement and the
related notes. The financial statements have been prepared under the accounting policies set out herein.
This report is made solely to the Minister for Economic Development in accordance with Article 21(3) of the Financial
Services Commission (Jersey) Law 1998. Our audit work has been undertaken so that we may state to the Minister
for Economic Development those matters that we are required to state in the auditors’ report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Minister for
Economic Development for our audit work, for this report, or for the opinions that we have formed.
Respective responsibilities of Commissioners and Auditors
The Commissioners’ responsibilities for preparing the Annual Report and the financial statements in accordance
with applicable Jersey law and United Kingdom accounting standards are set out in the statement of
Commissioners’ responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements
and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and have been properly
prepared in accordance with the Financial Services Commission (Jersey) Law 1998.
In addition, we report to you if, in our opinion, the Commission has not kept proper accounting records and if we have
not received all the information and explanations that we require for our audit.
We read the other information contained in the Annual Report and consider whether it is consistent with the audited
financial statements. The other information comprises only the Chairman’s Statement, the Director General’s Statement,
the reports on the Commission’s supervisory approach, international standards and policy developments, enforcement,
the Registry and the Support Divisions, and the statement on corporate governance. We consider the implications for
our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements.
Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements
made by the Commissioners in the preparation of the financial statements, and of whether the accounting policies
are appropriate to the Commission’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are
free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:
• the financial statements give a true and fair view, in accordance with applicable Jersey law and United Kingdom
Generally Accepted Accounting Standards, of the state of the Commission’s affairs as at 31 December 2007
and of its surplus for the year then ended; and
• the financial statements have been properly prepared in accordance with the Financial Services Commission
(Jersey) Law 1998.
PKF (UK) LLP
Bristol
United Kingdom
2 May 2008
Page 54
ANNUAL REPORT 2007
INCOME AND EXPENDITURE ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2007
2007
Note
£ooo
£ooo
£ooo
Income:
Regulatory fees
4 (a)
8,228
Registry fees
4 (b)
6,381
Profit on sale of tangible fixed assets
1
Bank deposit interest received
569
Total income
15,179
Contribution to States of Jersey
4,100
Net income
11,079
Operating expenses:
Staff salaries, social security and pension contributions
6,938
6,077
Operating lease expenditure
466
319
Other premises costs
362
306
Computer systems costs
350
291
Legal and professional services
455
301
Investigations and litigation
5
882
519
Public relations costs
35
41
Travel costs
186
142
Staff training
155
159
Recruitment costs
63
139
Other operating expenses
265
216
Auditors’ remuneration
13
16
Depreciation of tangible fixed assets
7
606
411
Total operating expenses
10,776
Excess of income over expenditure
303
Accumulated reserve brought forward
4,684
Accumulated reserve carried forward
4,987
2006
£ooo
7,347
6,169
412
13,928
4,100
9,828
8,937
891
3,793
4,684
Statement of total recognised gains and losses
There were no recognised gains or losses other than those detailed above.
Historical cost equivalent
There is no difference between the net surplus for the year stated above and its historical cost equivalent.
Continuing operations
All the items dealt with in arriving at the net surplus in the income and expenditure account relate to continuing operations.
The notes on pages 58 to 62 form an integral part of these financial statements.
ANNUAL REPORT 2007
Page 55
BAL ANCE SHEET AS AT 31 DECEMBER 2007
2007
Note
£ooo
£ooo
£ooo
Fixed Assets:
Tangible assets
7
1,171
Current Assets:
Fee income receivable
5
3
Sundry debtors
32
10
Prepayments
235
186
Cash at bank and in hand
7,733
7,736
8,005
7,935
2006
£ooo
522
Creditors - amounts falling due within one year:
Fee income received in advance
4 (c)
3,424
3,202
Creditors and provisions
6
765
571
4,189
3,773
Net Current Assets
3,816
Total Assets less Current Liabilities
4,987
4,162
4,684
Represented by:
Accumulated reserve
4,987
4,684
The notes on pages 58 to 62 form an integral part of these financial statements.
The financial statements on pages 55 to 62 were approved by the Board of Commissioners, and signed on their behalf
on 2 May 2008 by:
G C Powell CBE
J A Richomme
Chairman
Deputy Chairman
Page 56
ANNUAL REPORT 2007
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
2007
£ooo
£ooo
£ooo
Reconciliation of net income to net cash inflow
from operating activities
2006
£ooo
Net income for the year
303
Profit on sale of tangible fixed assets
(1)
Interest received
(569)
Depreciation charges
606
(Increase)/Decrease in debtors and prepayments
(73)
Increase in creditors
416
891
(412)
411
36
499
682
1,425
Net cash inflow from operating activities
Cash Flow Statement
Net cash inflow from operating activities
682
Returns on investments and servicing of finance
Interest received
569
Capital expenditure
Payments to acquire tangible fixed assets
(1,255)
(355)
Receipts from sale of tangible fixed assets
1
(1,254)
- (Decrease)/Increase in cash
(3)
Reconciliation of net cash flow to movement in net funds
(Decrease)/Increase in cash in the year
(3)
Net funds at 1 January
7,736
Net funds at 31 December
7,733
1,425
412
(355)
1,482
1,482
6,254
7,736
ANNUAL REPORT 2007
Page 57
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2007
1. Accounting policies
a)The financial statements have been prepared under the historical cost convention, and in
accordance with generally accepted accounting practice in the United Kingdom.
A summary of the more important accounting policies is set out below.
b) Income is accounted for during the period to which it relates, and expenditure is accounted for on
an accruals basis.
c) Fixed assets are stated at cost less depreciation.
Depreciation on tangible fixed assets is calculated to write down their cost on a straight line basis
to their estimated residual values over their expected useful lives.
Computer equipment is depreciated over three years.
Computer software costs are written off as incurred to the Income and Expenditure Account,
except for purchases in respect of major systems. In such cases, the costs are depreciated over
three years.
Office furniture, fittings and equipment are depreciated over five years.
d) Foreign currency transactions during the year have been translated at the rates of exchange ruling
at the dates of the transactions.
Any profits or losses arising from such translations into Sterling are accounted for in the Income
and Expenditure Account.
e) Costs incurred as the result of investigations and litigation, and any cost recoveries, are accounted
for in the year when the obligation exists at the balance sheet date.
f) All leases are operating leases, and the annual rentals are charged to operating expenses on a
straight line basis over the term of the lease. The value of the rent free period that was granted
upon the Commission’s occupation of its current premises has been accounted for over the term of
the lease.
g)The contribution to the States of Jersey is shown as a deduction from total income in order to
reflect clearly the amount available to fund the activities of the Commission.
h) Pension costs included in staff salaries represent the actual costs incurred during the year.
2. Related party transactions
Whilst there are transactions on an arm’s length basis between the Commission and the States of
Jersey, it is not considered that these are related party transactions. However, Jacqueline Richomme
is a Commissioner and also a partner of Mourant du Feu & Jeune. Similarly, Frederik Musch is
a Commissioner and also the Chairman of the Global Financial Services Regulatory Practice at
PricewaterhouseCoopers Belgium. During the year, the Commission used Mourant du Feu & Jeune
and PricewaterhouseCoopers to provide certain legal and professional services. Costs incurred were
£70,000 (2006 - £56,000) and £42,000 (2006 - £18,000) respectively. These were contracted on
an arm’s length basis, and are not considered to be significant in the context of the business of
the parties. 3.Taxation
The Commission is exempt from the provisions of the Income Tax (Jersey) Law 1961, as amended. Page 58
ANNUAL REPORT 2007
31 DECEMBER 2007
4. Income
a) Regulatory fees
Banking
Funds
Insurance companies
General insurance mediation
Investment business
Trust companies
2007
£ooo
2006
£ooo
1,321
2,886
516
88
1,112
2,305
1,188
2,537
536
74
1,085
1,927
8,228
7,347
b) Registry fees
Registry fees comprise income derived from the operation of the Companies Registry,
the Business Names Registry, the Registry of Limited Partnerships and the Registry of Limited
Liability Partnerships.
c) Regulatory fees received in advance
2007
2006
£ooo
£ooo
Banking
1,430
1,381
Funds
1,216
1,042
Insurance companies
391
370
General insurance mediation
-
2
Investment business
379
376
Trust companies
8
31
3,424
3,202
5. Investigation and litigation costs
As part of its regulatory responsibilities the Commission carries out investigations and enters into legal
actions from time to time, the costs of which may be significant. The costs of each investigation or
legal action may arise over a number of years, and are accounted for in the year when the obligation
exists at the balance sheet date.
In a few cases, some or all of the Commission’s costs may be recoverable although not necessarily in
the same financial year as the expenditure. In such cases the recovery is recognised when received.
Net costs incurred during 2007 amounted to £882,000 (2006 - £519,000).
ANNUAL REPORT 2007
Page 59
31 DECEMBER 2007
6. Creditors and provisions
General expense creditors
Accruals
Provisions
2007
£ooo
2006
£ooo
496
269
-
346
123
102
765
571
ccruals contain an amount of £213,000 (2006 - nil) relating to the unexpired portion of the rent free
A
period granted at the time when the Commission took out the lease on its premises.
7.Tangible assets
Office
Furniture
Fittings &
Equipment
£ooo
Cost of assets at 1 January 2007
485
Additions during year
451
Disposals during year
(470)
Cost at 31 December 2007
466
Depreciation at 1 January 2007
435
Charged during year
97
Eliminated on disposals
(470)
Depreciation at 31 December 2007
62
Computer
Equipment
Total
£ooo
1,810
804
(126)
2,488
£ooo
2,295
1,255
(596)
2,954
1,338
509
(126)
1,721
1,773
606
(596)
1,783
404
767
1,171
Net book value at 31 December 2006
50
472
522
Net book value at 31 December 2007
8. Financial commitments
The Commission has entered into an agreement through JFSC Property Holding No.1 Limited
(note 11) to lease premises for the Commission’s occupation.
2007
£ooo
2006
£ooo
-
160
For a period of more than five years
490
The rentals payable under this operating lease are subject to periodic review.
98
The annual rentals payable under this operating lease are:
For a period of less than one year
Page 60
ANNUAL REPORT 2007
31 DECEMBER 2007
9. Contingent liabilities
At the balance sheet date the Commission has provided an indemnity of up to £10,000 in connection with the investigation of alleged mis-selling by regulated entities and the subsequent compensation
of investors.
The Commission has also provided an indemnity of up to £90,000 to the liquidators of a regulated entity against the possibility that legal actions commenced by the liquidators are lost and that cost awards are made against the liquidators.
No provision has been made in the accounts for these possible future costs, because the outcome and therefore any obligation to make payments remains uncertain and is considered remote.
10.Commissioners’ remuneration
2007
£
2006
£
Fees paid to Commissioners were as follows:
Colin Powell
Chairman
45,000
45,000
Richard Pirouet
Deputy Chairman (resigned 31 May 2007)
10,000
24,000
Jacqueline Richomme
(appointed Deputy Chairman 15 June 2007)
21,271
18,000
John Averty
18,000
18,000
John Boothman
(appointed 30 June 2006)
18,000
9,000
Michael Clapham
18,000
18,000
Scott Dobbie
27,500
27,500
John Harris
nil
nil
Clive Jones
(appointed 23 October 2007)
3,452
n/a
Frederik Musch
27,500
27,500
Sir Nigel Wicks
(appointed 20 July 2007)
12,375
n/a
Andrew Winckler
(deceased 15 January 2007)
n/a
27,500
John Harris is the Director General of the Commission. During the year he was paid no fees as a
Commissioner, but received total remuneration of £225,000 for the year (2006 - £17,000 during the period from 1 November 2006 (his date of appointment) until 31 December 2006) in his capacity as Director General.
11.Interest in wholly-owned companies
The Jersey Financial Services Commission has two wholly owned companies, JFSC Property Holding No.1 Limited and JFSC Property Holding No.2 Limited.
JFSC Property Holding No.1 Limited has entered into an agreement on behalf of the Commission to lease premises for the Commission’s occupation. Consequently, the Commission has entered into an agreement with JFSC Property Holding No.1 Limited whereby the Commission will be responsible for all expenditure associated with the lease. The company holds no assets or liabilities and therefore has not been consolidated in the financial statements.
JFSC Property Holding No.2 Limited is dormant, and has not been consolidated in the financial statements.
ANNUAL REPORT 2007
Page 61
31 DECEMBER 2007
12.Pension costs
a)Staff initially employed by the Commission before 1 January 1999 are members of the Public
Employees Contributory Retirement Scheme (“PECRS”) which, whilst a final salary scheme, is not
a conventional defined benefit scheme because the employer is not responsible for meeting any
ongoing deficit in the scheme. The assets are held separately from those of the States of Jersey.
Contribution rates are determined by an independent qualified actuary so as to spread the costs of
providing benefits over the members’ expected service lives.
Salaries and emoluments include pension contributions for staff to this scheme amounting to
£91,000 (2006 - £87,000). The increase is due to the annual pay review. The Commission
has adopted Financial Reporting Standard 17 “Retirement Benefits” (“FRS17”). Because the
Commission is unable to readily identify its share of the underlying assets and liabilities of PECRS
under FRS 17, contributions to the scheme have been accounted for as if they are contributions to
a defined benefit scheme. The contribution rate paid by the Commission during the year was 13.6% of salary, and this rate is
expected to continue to be payable during 2008.
Actuarial valuations are performed on a triennial basis, the most recent being at 31 December
2004. The main purposes of the valuation are to review the operation of the scheme, to report
on its financial condition, and to confirm the adequacy of the contributions to support the
scheme benefits.
The conclusion of the latest valuation is that there is a deficiency in the scheme assets at
the valuation date of £17.4 million. Because the scheme is accounted for as if it is a defined
contribution scheme, no account has been taken of the Commission’s share of this deficiency.
In addition to this, at the date of the latest valuation at 31 December 2004 there was also a debt
of £123 million due to the scheme from the States of Jersey that relates to the period pre-1987.
The Committee of Management of PECRS advised the Commission that its share of the pre-1987
debt was approximately £1.5 million, and the Commission settled this liability during 2005.
Copies of the latest Annual Accounts of the scheme, and of the States of Jersey, may be obtained
from the States Treasury, Cyril Le Marquand House, The Parade, St Helier JE4 8UL.
b) Staff initially employed by the Commission after 1 January 1999 are members of the Jersey
Financial Services Commission Staff Pension Scheme, which is a defined contribution scheme
whose assets are held separately from those of the Commission. The administration of the scheme
is carried out by independent administrators, and the Commission has appointed independent
managers for the management of the investments.
Salaries and emoluments include pension contributions for staff to this scheme amounting to
£325,000 (2006 - £281,000). The increase is due to rising staff numbers.
Page 62
Particulars of the scheme may be obtained from The Commission Secretary, Jersey Financial
Services Commission, PO Box 267, 14-18 Castle Street, St Helier JE4 8TP.
ANNUAL REPORT 2007
Introduction
The Commission is committed to achieving high
standards of corporate governance and, to this end,
regards the Combined Code on Corporate Governance
(the “Code”) issued by the United Kingdom’s Financial
Reporting Council in July 2003 and updated in June
2006, as the model of best practice that the
Commission should follow.
The Code is primarily designed for listed companies and
some of the provisions in it (principally the provisions
on shareholder relations) are therefore not applicable to
a public body carrying out regulatory functions such as
the Commission. The Commission complies with the
provisions of the Code to the extent that compliance is
proportionate and consistent with the Commission’s
responsibilities as a regulator.
Constitution of the Commission
The Commission is a statutory body corporate
established under Article 2 of the Financial Services
Commission (Jersey) Law 1998 (the “Commission
Law”). The governing body comprises a Board of
Commissioners. The Board of Commissioners is
responsible for setting the strategic aims of the
Commission and ensuring that the necessary
financial and human resources are in place for the
Commission to meet its objectives.
Functions of the Commission
The functions of the Commission are set out in Article 5
of the Commission Law that states that the Commission
shall be responsible for:
(a) the supervision and development of financial
services provided in or from within the Island;
(b) providing the States of Jersey, any Minister of
the States or any other public body with reports,
advice, assistance and information in relation to
any matter connected with financial services;
(c) preparing and submitting to the Minister
for Economic Development (the “Minister”)
recommendations for the introduction, amendment
or replacement of legislation appertaining to
financial services, companies and other forms
of business structure; and
(d) such functions in relation to financial services or
such incidental or ancillary matters (i) as are required or authorized by or under any enactment; or
(ii) as the States may, by Regulations, transfer.
Constitution of the Board
Article 3(1) of the Commission Law requires the
Board to consist of a Chairman and not less than
six other Commissioners.
Currently, the Board consists of a Chairman,
Deputy Chairman and eight other Commissioners.
One Commissioner is the Director General of
the Commission; all other Commissioners are
non-executive. Six of the Commissioners live in
Jersey, two in the United Kingdom, and one
in Belgium.
Article 3(3) of the Commission Law requires the
Commissioners to include (a) persons with experience of the type of financial
services supervised by the Commission;
(b) regular users on their own account or on behalf of
other, or representatives of those users, of financial
services of any kind supervised by the Commission;
and
(c) individuals representing the public interest.
The Board is satisfied that the Commissioners
meet these requirements. The current membership
of the Board is shown in the chapter entitled
‘The Commissioners’.
The roles of the Chairman and chief executive (Director
General) are split and their respective responsibilities are
distinct. The Chairman is responsible for the running of
the Board’s business and the Director General has
executive responsibility for the running of the
Commission’s day-to-day business.
The Deputy Chairman of the Board is considered by the
Board to be its de facto ‘Senior Independent Director’ as
described in the Code.
ANNUAL REPORT 2007
Page 63
‘The Commission is committed to achieving
high standards of corporate governance.’
Page 64
ANNUAL REPORT 2007
Vacancies that arise on the Board are filled through
the use of an open and transparent process. The
Board follows the procedures recommended by the
Jersey Appointments Commission - a body set up
by the States of Jersey to overview all public sector
appointments. A vacancy is always advertised and once
a suitable candidate is identified a recommendation
is made to the Minister. Under the provisions of the
Commission Law, the appointment of Commissioners
is a matter reserved for decision by the States of Jersey.
If the Minister is satisfied with the Commission’s
recommendation, the Minister will take an appropriate
proposition to the States for debate.
Article 11 of the Commission Law empowers the Board
of Commissioners to delegate any of its powers to the
Chairman, one or more Commissioners, or an officer
of the Commission. However, the Board has decided
to retain to itself those powers that could have a highly
significant effect on the achievement of its key purposes
or on the finances or reputation of the Commission.
On appointment, a Commissioner will receive induction
to the work of the Board and each Division of the
Commission. This includes an opportunity to meet
senior staff in each Division.
• the refusal of an application or the revocation of a
permit, registration, etc., under the four regulatory
laws (except in certain limited circumstances,
for example where the revocation of a permit,
registration or similar is at the request of the
registered person).
Under the provisions of the Commission Law,
Commissioners are appointed for terms not exceeding
three years and, upon expiry of their term of office, are
eligible for reappointment.
The Board established a Nomination Committee
in November 2005 to lead the process for
making recommendations on the appointment of
Commissioners.
Operation of the Board
The Board usually meets at least ten times a year and
will hold additional meetings when circumstances
require it. In advance of each meeting, Commissioners
are provided with comprehensive briefing papers on
the items under consideration. The Board is supported
by the Commission Secretary who attends and
minutes all meetings of the Board.
During 2007 the Board of Commissioners met ten
times. Attendance was as follows:
Colin Powell
10/10
Richard Pirouet 4/4
Jacqueline Richomme 10/10
John Harris
8/10
John Averty
8/10
John Boothman
10/10
Michael Clapham
10/10
Scott Dobbie
10/10
Clive Jones
1/2
Frederik Musch
7/10
Sir Nigel Wicks
3/4
In particular, in relation to licensing decisions,
the Board has retained those powers, which relate to:
• the authorisation of all new business applicants
under the Banking Business (Jersey) Law 1991;
and
The Board has adopted a policy statement that sets
out in detail which powers the Board has retained to
itself and those powers that it has delegated to the
Executive of the Commission. The full text of the policy
statement can be viewed on the Commission’s website
www.jerseyfsc.org
On an annual basis, the Board holds an Away Day.
This event, which is also attended by the Director
General, Deputy Director General and Divisional
Directors, is an opportunity for the Board to conduct
a frank evaluation of its performance during the year
and discuss possible changes to its modus operandi.
The Away Day also provides an opportunity to discuss
strategic issues for the year ahead.
The Board maintains a rolling three-year business
plan and an annual budget. In the last quarter of each
year, the Executive of the Commission prepares a draft
business plan and budget incorporating, amongst
other things, any strategic issues raised by the Board
at its annual Away Day. The draft business plan and
budget is considered by the Board in December of
each year. The Commission publishes an abridged
version of the detailed internal Business Plan used by
the Commission’s staff for comprehensive planning
and monitoring purposes.
ANNUAL REPORT 2007
Page 65
The Board monitors performance against the objectives
set in the business plan by reviewing regular reports
from each Divisional Director. These reports are
considered at the Board’s regular meetings at which
the relevant Director is present and available to
answer any questions that Commissioners may have.
Performance against budget is monitored by the
presentation of quarterly management accounts to
the Board and ad-hoc financial presentations as and
when appropriate.
The Board monitored key risks during 2007 in
compliance with the guidance, ‘Internal Control:
Revised Guidance for Directors on the Combined Code
(The Turnbull Guidance)’. The Board maintains a Risk
Management Schedule that identifies the risks faced by
the Commission and the controls that are in place to
keep each risk within an acceptable level. Risks are
identified by Division and regular reports submitted
to the Board to enable it to ensure that appropriate
controls remained in place.
Committees of the Board
The Board has established three committees;
an Audit Committee, a Nomination Committee and a
Remuneration Committee. The Board appoints the
members of those Committees.
The key duties of the Audit Committee are:
• to review the working of the system for internal
control and seek regular assurance that will enable
it to satisfy itself that the system is functioning
effectively;
• to report to the Board on the effectiveness of
internal control;
• to monitor and review the effectiveness of any
internal audit work carried on by the internal audit
function, in the context of the Commission’s overall
risk management system;
• to review and assess the internal audit function’s
annual work plan;
• to review all reports on the Commission from
the internal audit function and monitor the
Executive’s responsiveness to the findings
and recommendations;
• to meet with the officer most immediately
responsible for internal audit work, at least once
a year, without the presence of the Executive,
to discuss their remit and any issues arising from
the internal audits carried out;
Page 66
ANNUAL REPORT 2007
• to approve the Commission’s Security Policy and to
consider any reports submitted by the Director,
Information, Communications and Technology, and
the Senior Manager, Facilities Management; and
• to review the Commission’s arrangements for
its employees to raise concerns, in confidence,
about possible wrongdoing in financial reporting or
other matters. The Committee shall ensure
that these arrangements allow proportionate and
independent investigation of such matters and
appropriate follow-up action. Whilst the Audit Committee’s terms of reference include
the consideration of the annual appointment of the
external auditor, the actual appointment of the auditor is
a matter reserved to the Minister under Article 21(3) of
the Commission Law.
The members of the Audit Committee during 2007
were Scott Dobbie (Chairman), John Averty and
John Boothman.
The Audit Committee met five times during 2007.
The Audit Committee’s full Terms of Reference can be
obtained from the Commission’s website.
The key duties of the Nomination Committee are:
• to regularly review the structure, size and
composition (including the skills, knowledge and
experience) required of the Board compared to its
current position and make recommendations to the
Board with regard to any changes;
• to give full consideration to succession planning for
Commissioners and the Director General in
the course of its work, taking into account the
challenges and opportunities facing the
Commission, and what skills and expertise are
therefore needed on the Board in the future; and
• to ensure that the Chairman of the Board conducts
an annual evaluation of the performance of the
Board, its committees, and individual
Commissioners.
All members of the Board of Commissioners are
members of the Nomination Committee.
Responsibility for evaluating the Chairman’s
performance lies with the non-executive
Commissioners led by the Deputy Chairman.
The Nomination Committee met once during 2007.
Commissioner Andrew Winckler, who had been a
Commissioner since the inception of the Commission,
died on 15 January 2007. Having served three terms
of office Commissioner Pirouet retired on 31 May
2007, with Commissioner Richomme replacing him in
the post of Deputy Chairman. Two new Commissioners
were appointed to fill the vacancies the first of whom
was Sir Nigel Wicks who joined the Commission on
20 July 2007. The second Commissioner to be
appointed was Commissioner Clive Jones who joined
the Commission on 23 October 2007. The Board held
an Away Day with the Executive in September 2007
and the Chairman reported on the annual evaluation
of the performance of the Board, its Committees,
and individual Commissioners at the Nomination
Committee meeting held in October 2007.
The Nomination Committee’s full Terms of Reference
can be obtained from the Commission’s website.
The key duties of the Remuneration Committee are:
• to set the remuneration level of the
Director General;
• to agree the budgetary level of the annual
pay review taking account of a market
remuneration analysis provided by the
Director, Human Resources;
• to agree, having received the recommendations
of the Director General, Directors’ remuneration; • to consider and agree any variations to the structure
of the remuneration package that may be proposed
from time to time; and
• to review from time to time the fees paid to the
non-executive Commissioners and, after consulting
with the Commissioners on any proposed change,
shall request the Chairman of the Commission to
put the proposal to the Minister for his consideration
and comment, following which the Minister shall
advise the Board of the appropriate level of fees to
be set.
The Remuneration Committee’s full Terms of Reference
can be obtained from the Commission’s website.
The procedures followed by the Commission
ensure that the setting of remuneration packages
for Commissioners is formal and transparent.
No Commissioner is involved in deciding his or
her own remuneration.
Accountability arrangements
Whilst the Commission is an independent body, it is
accountable for its overall performance to the States of
Jersey through the Minister.
As part of its accountability arrangements, the
Commission’s business plan, budget and Annual Report
are presented to, and discussed with, the Minister.
Under Article 21(2) of the Commission Law, the
Minister is required to lay a copy of the Annual Report
before the States not later than seven months after the
close of each financial year.
Under powers granted by Article 12 of the Commission
Law, the Minister may, after consulting the Commission
and where the Minister considers that it is necessary in
the public interest to do so, give to the Commission
guidance or give in writing general directions in respect
of the policies to be followed by the Commission.
The Commission has a duty in carrying out its functions
to have regard to any guidance and to act in accordance
with any directions given to it by the Minister.
The Minister and the Commission have entered
into a Memorandum of Understanding to clarify the
circumstances and the manner in which the powers
granted under Article 12 of the Commission Law would
be exercised. The text of the Memorandum can be
obtained from the Commission’s website.
The members of the Remuneration Committee during
2007 were Richard Pirouet (Chairman until May
2007), Jacqueline Richomme (Chairman from
July 2007), Colin Powell (from July 2007) and
Michael Clapham.
The Remuneration Committee met twice during 2007.
ANNUAL REPORT 2007
Page 67
Notes
Page 68
ANNUAL REPORT 2007
www.jerseyfsc.org

Annual Report | 2007 - the Jersey Financial Services Commission

Transcription

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